Lucid Motors – Off the Bottom?

Higher shipments at negative gross margins are not good news.

• Lucid Motors has preannounced its shipments for Q2 24 where it managed an impressive jump in shipments despite the weakening market but, as ever, cash flow remains critical and here there is likely to be less good news.
• Lucid Motors produced 2,110 vehicles and delivered 2,394 vehicles to customers, way above what it delivered in Q1 2024, but a lot of this appears to have been achieved with lower prices.
• This has led to a lot of chatter from the company around reaching escape velocity, breaking through and gaining momentum but the reality is that it is very easy to achieve deliveries with lower prices but much less easy to deliver cash flow from those deliveries.
• When it first shipped, the Lucid Air was around $100,000 but changes to the trim level and price cuts have meant that the price is now closer to $70,000.
• This puts it in much closer contention with Tesla and I have long argued that Lucid actually has a lot to offer.
• This is because the company is the main supplier of electric drivetrains to Formula-E which it has leveraged successfully into its production vehicles.
• This means that its motors are smaller and more efficient than many of its peers, which translates into roomier cabins and longer ranges without sacrificing headline performance.
• The problem that Lucid faces is cash flow and even after a lot of effort, the company still burned through $517m in Q1 2024 alone although this was down from $801m in Q1 2023.
• Gross margins remain substantially negative at -134% in Q1 2024 although this is better than the -235% in Q1 2023.
• This is the problem that the company faces as it implies that the more vehicles that it sells, the more money it loses, meaning that the growth in shipments could make the cash flow situation even worse.
• At the moment, this is the only thing that really matters and when the company reports its Q2 2024 results on 5^th August, cash flow from operations is the line item to watch.
• This is the key indicator that will determine whether Lucid Motors is a going concern and while this figure remains negative, it is clear that it is not.
• The company is almost certainly going to need to raise more money and fortunately, this is the one area where it is unlikely to have any problems.
• This is because Lucid Motors is 66% owned by the sovereign wealth fund of Saudi Arabia (PIF) and given how good Lucid’s technology is, I think it is very unlikely that PIF declines to support Lucid like it failed to support Credit Suisse.
• There may end up being all sorts of conditions like manufacturing in Saudi Arabia (not a completely crazy idea given how popular cool cars are in the Gulf), but I am sure the cash would be forthcoming.
• The real question then is at what price will the next raise come and here there is no way to tell.
• The company still has a market capitalization of $7.2bn and an enterprise value of $4.3bn, which is high for a company with less than $1bn in annual revenues and negative gross margins.
• This means that there is no fundamental bottom for the share price meaning that the task for a bottom fisher will be to guess PIF’s pain point at which it throws in the towel and acquires the company and takes it private.
• I have no idea what this number is and so I am staying away even though I like the company, its products, its technology and its management.