Lucid – Cautionary Tale

PIF is Lucid’s one lifeline.

• Despite being one of the best EV’s that one can buy, Lucid is in real financial and operational difficulty, meaning that it is only likely to survive as a wholly owned subsidiary of the Saudi Arabia Public Investment Fund (PIF).
• Lucid recently went through a complete reset as it became clear that its strategy was failing, but I am not convinced that the reset is going to work.
• In August, the company identified $1.4bn of cash savings largely by cutting opex, slashing capex and working capital all of which are a death sentence to a company that is trying to get to scale.
• The first results of this are visible in Q3 26, where production fell by 54% YoY even though deliveries were around 3,800, broadly flat both YoY and QoQ.
• This means that once inventories have been brought down and cash released, revenues are going to crater as the company will be selling far fewer cars going forward.
• This means lower operating leverage and potentially higher losses and cash outflow than before.
• One of the problems with making cars is that they are very expensive to develop, meaning that one needs to sell a lot of them to make good money.
• The exception is that if one is a known brand such as Ferrari or Bugatti, in which case one can charge crazy prices to recover the cost of development and still make money.
• Lucid is a new brand and relatively unknown, and while its products are excellent, its biggest problem to date has been low volume due to the very high price of its vehicles.
• Ever since it went public (a major mistake), it has been plagued with the need to raise capital which, when the bottom fell out of the SPAC market, exacerbated things still further.
• Lucid is currently down 96% from its listing price, and its balance sheet shows that $16.6bn has been pumped in by shareholders, of which $17.7bn ($1.1bn in debt) has been consumed on the capital bonfire.
• The $1.4bn of savings is one of four new pillars, of which the other three are robotaxis with Uber and Nuro, its new factory in Saudi Arabia and a Midsize (lower-priced) product that should ramp volume.
• The problem for Lucid is that when it comes to robotaxis, I am far from convinced that most users are going to be willing to pay a premium to ride in a Lucid vehicle.
• This means that lower-end, lower-cost vehicles will make far more sense for the robotaxi operators, and so whatever Lucid sells here is unlikely to result in real volumes.
• This leaves the factory in Saudi Arabia where it probably gets very favourable terms given its majority ownership by PIF, which will feed into the Midsize product, which I suspect is Lucid’s only real hope.
• Only a lower-priced product will get the scale that will allow Lucid to obtain the volume needed to cover its fixed costs, but this is now more perilous than ever given how good Chinese companies have become at making cars.
• When Lucid’s shares had fallen 80% from their list price, I thought about taking a stake on the basis that the Saudi state would not let it go bust and was likely to buy out the shares that it did not own.
• However, the shares have now fallen another 79% since then and still no offer is forthcoming.
• I didn’t buy it then as the risk-reward was uncompelling, it is even less so now.