Lucid's $338,000 loss per electric vehicle is rattling investor confidence

Analysts' average 2023 sales estimate for the company has dropped by nearly 50 per cent over the past six months

A Lucid Air Dream Edition electric vehicle on the opening day of the Geneva International Motor Show Qatar 2023, in Doha. Bloomberg

The diverging fortunes of the two most prominent electric vehicle start-ups in the US show Wall Street is picking a side – and it’s not Lucid Group.

Having recently touched an all-time low, the stock is down nearly 25 per cent this year through Thursday’s close, compared to a 1 per cent decline for pickup truck-making peer Rivian Automotive in the same period.

The percentage of bullish analyst ratings on Lucid has dwindled to only about a quarter of all recommendations. For Rivian, more than half of the ratings are the equivalent of a buy.

The performances reflect deeper differences. Lucid, which according to a Bloomberg Intelligence estimate is set to burn $338,000 for every vehicle it makes this year, said in August that it still expected to produce at least 10,000 cars in 2023.

Analysts’ average 2023 sales estimate for the firm has sunk nearly 50 per cent over the past six months.

Rivian EV displayed at the Electric Vehicle Innovation Summit in Abu Dhabi. Victor Besa / The National

In comparison, Rivian, which is estimated to lose about $110,000 per vehicle according to Bloomberg Intelligence, forecast full-year production of 52,000 units on Monday, and the average expectation for its 2023 sales has risen about 5 per cent.

“Lucid is well below the pace needed to hit even 10,000 cars this years, and that’s why they continue to bleed money,” Jerry Braakman, chief investment officer at First American Trust, said in an interview.

“The stock will continue to be challenged until they can show that they have made a significant progress in the number of units sold.”

Car making is a notoriously capital-intensive process. Which is why Lucid and Rivian’s deep-pocketed backers – Saudi Arabia’s Public Investment Fund for Lucid and Amazon for Rivian – helped them command premium valuations that they still enjoy over other upstarts.

But that only goes so far at a time when markets are grappling with the prospect of higher-for-longer interest rates and tighter liquidity. Rivian shares slumped 23 per cent on Thursday after the company said it planned to issue $1.5 billion in convertible debt.

Lucid had tapped the capital markets for cash earlier this year, securing an infusion from the Saudi fund, a move that typically does not sit well with shareholders.

“It dilutes the stock, so from a common investor’s standpoint that is a tough space to be in,” Mr Braakman added.

The company is currently in a quiet period ahead of its third-quarter earnings report, and did not comment for the story. The stock dropped as much as 2.3 per cent on Friday, while Rivian fell 3.4 per cent, after a hotter-than-expected US jobs report sparked a market-wide sell-off.

Lucid plans a phased global expansion with Saudi Arabia – the Arab world’s largest economy. Bloomberg

Peter Rawlinson, chief technology officer for Lucid Motors Inc.

Lucid was founded in 2007 under the name Atieva and was initially focused on building EV batteries.

In 2016, it rebranded as Lucid Motors, moved away from being a supplier and pivoted towards making a rival luxury sedan to Tesla.

In 2018, the PIF invested more than $1 billion (Dh3.67bn) in Lucid for a majority stake in the company and to help accelerate the manufacturing of its first EV.

Lucid aims to produce up to 8,000 units of Air from its Arizona facility next year and then increase that to 25,000 and 34,000 in 2022 and 2023, respectively.

Other investors of Lucid include Tokyo-based Mitsui and California’s venture capitalist Venrock.

The company claims Air will be the fastest-charging EV in the market, with a charging speed of more than 32 kilometres per minute, under controlled conditions.

Once seen as the most credible competitors to Tesla, Lucid and Rivian entered public markets in mid-to-late 2021, when market enthusiasm for new EV-makers was high. Their valuations soared before the tables rapidly turned in 2022 as traders veered from riskier growth investments. Lucid is down 91 per cent from its peak, while Rivian has lost 89 per cent.

Severe supply-chain shortages and surging prices of battery raw materials plagued them further, but troubles have stuck with Lucid this year. The company has struggled to ramp up sales, selling around 1,400 units in both the first and second quarter. For the third quarter, it is estimated to have sold about 2,100 cars. Rivian’s sales, on the other hand, have significantly grown every quarter so far this year.

The risk that Lucid may default on its debt payments is also climbing.

According to Bloomberg Intelligence credit analyst Joel Levington, the company’s default risk is now at 16 per cent, almost four times the median for global automotive manufacturers.

“Lucid’s near-term strength is its cash balance of $5.2 billion, but its cash burn of almost $7 billion through 2024 tempers views,” Mr Levington wrote in a note on Wednesday.

At the same time, the firm is trying to find a foothold in a market where Tesla already rules. The company makes a luxury electric sedan that competes with Tesla’s Model S, along with several new models rolled out by more established global carmakers such as Mercedes-Benz Group, BMW, and Volkswagen’s Porsche and Audi brands.

“The problem lies with how Lucid positioned itself – going after a luxury, smaller volume market, while Rivian is targeting a bigger addressable market,” said Tom Narayan, an analyst with RBC Capital Markets.

That said, Mr Narayan noted that “Rivian isn’t out of the woods either, though it is now in a better place compared to Lucid.”