Test drive of the Dream Edition P and Dream Edition R electric vehicles on the Lucid Motors factory in Casa Grande, Arizona, September 28, 2021.
Caitlin O’Hara | Reuters
Manufacturer of luxury electric vehicles Transparent seems to have a demand problem.
The corporate said in its fourth-quarter earnings report Wednesday that it had “greater than 28,000” bookings for the Air sedan as of February 21. That was a surprise considering the corporate reported “over 34,000” bookings in November and delivered lower than 2,000 vehicles within the fourth quarter.
Much more surprising: Lucid said it plans to construct just 10,000 to 14,000 vehicles in 2023, far lower than the roughly 27,000 Wall Street analysts expected – and than the roughly 34,000 vehicles a 12 months the Lucid plant is anticipated to produce.
The corporate’s shares have fallen about 15% since Wednesday’s report.
Lucid faced a bumpy road Air into production. The corporate spent a lot of the first half of 2022 securing key components and resolving logistical issues. Now that production is kind of running easily, he seems to be facing a latest problem: not enough of his bookings are turning into orders.
CEO Peter Rawlinson acknowledged this during a salary talk when he reminded listeners that bookings are non-binding.
“Now we have solved the production problem. It is not a goalkeeping issue now,” Rawlinson said. “I deal with sales. And here’s the thing: we’ve what I consider to be one of the best product on the planet. … Too few persons are aware not only of the automobile, but even of the corporate.”
Rawlinson went on to say that he considers it a “completely solvable problem” and plans to deal with “strengthening customer awareness” in 2023.
More marketing might help. But apparently demand for Lucid vehicles is not picking up as quickly as the corporate had hoped, raising tough questions for investors.
First, how big is Lucid’s potential market? Any estimate of how much Lucid could grow must start with the “total addressable market” estimate, and it seems the corporate’s estimates on this front could have been too rosy given its factory is geared to produce way more vehicles than are currently being built.
Running a automobile factory well below capability shouldn’t be exactly the way in which to profitability, as CFO Sherry House acknowledged during Lucid’s earnings call.
“Because we produce vehicles in small quantities on production lines designed for higher volumes, we’ve and can proceed to experience negative gross profit related to labor and overhead costs,” House said.
This leads to a second, related query: how long will Lucid have to run his factory at a loss? In other words, how long will it take Lucid to break even – and the way much money will it have to raise from time to time?
Bank of America analyst John Murphy has long been optimistic about Lucid, but in a note to investors following the discharge of the report, Lucid downgraded the bank’s suggestion for the stock to hold from buy. Murphy wrote that he now believes Lucid is not going to break even before 2027 and that the corporate will need to raise more capital earlier than he previously expected.
The excellent news is that Lucid has an investor with deep pockets. The Saudi Public Investment Fund owns about 62% of Lucid and has shown — most recently in December when it invested an extra $915 million — that it stays willing to fund the corporate. So long as he has the support of the Saudi fund, Lucid should be able to proceed operating.
However the path to profitability — and a giant payout for Lucid investors — now looks longer.