Lucid Motors Q2 2022 – a gross problem.

Negative gross margins must be fixed at all costs.

• Lucid Motors reported awful Q2 2022 results as it suffers from negative gross margins and remains unable to fulfil the demand that it has making the stock look even more overvalued than it already is.
• Q2 2022 revenues / EPS were $97.3m / LOSS$0.33 way below estimates of $157.1m / LOSS$0.41 and the company was forced to cut its production forecasts yet again.
• It now expects to produce between 6,000 and 7,000 vehicles in 2022 which is a very far cry from the 20,000 target originally set for 2022.
• According to management, this is entirely due to supply chain problems, which in this case, I am inclined to believe.
• Lucid is a small player and so will be at the back of the queue when it comes to getting components as many of its competitors will be placing much larger orders and will therefore get priority.
• Hence, I am not too concerned at this stage that the production cut is a result of an inability to execute unlike Faraday Future (see here).
• Lucid’s management has also brought the vehicle to production and is able to produce in volume albeit much less than hoped.
• However, it is deeply worrying when the company losses less money when it misses sales as this implies that the product itself is very unprofitable.
• This is clear from the Q2 2022 results where revenues of $97.3m are matched by cost of revenues of $292.3m producing gross margins of -200%.
• This is a factor that needs to be watched extremely carefully because unless this is rectified, the company will go bankrupt no matter how much money it raises or how good its management team is.
• The company has orders for 37,000 vehicles for the Lucid Air which represents around $5bn in revenues that are very likely to occur but this brings us to the real problem of this company, its market valuation.
• I like Lucid because it is one of the few companies that actually has differentiation in this already crowded space as it is the supplier of drive trains to Formula E racing.
• This means that its vehicles have excellent performance with smaller more compact motors which Lucid has leveraged to provide a larger and more luxurious cabin space.
• However, even after last night’s fall the company has a market capitalisation of $30.4bn and an EV of $25.8bn.
• This means that even if all of its pre-orders were to be realised next year, the company would still be trading on 5x EV / sales.
• Furthermore, there is no way that Lucid can make it to cash flow break-even on current resources as the CFO acknowledged on the call stating that the company was well-financed well into 2023.
• This means that there is going to be a big capital raise in 2023 which could be very dilutive to existing shareholders.
• With the stock at a ludicrous valuation and gross margins in bankruptcy territory, there is no way that I would want to own this stock now.
• However, I like the technology, the product and the management and so there is hope that this will turn around.
• I think there is a good chance that one will have a chance to buy these shares at a much lower valuation.