Lucid stock offering underscores reliance on Saudi funding

Shares of Lucid Group (NASDAQ:LCID) remain on the defensive and have breached support at the 100- and 200-day moving averages at Thursday’s open as the automaker’s stock offering continues to weigh.

Late Wednesday, Lucid (LCID) said it would sell 262M shares of common stock giving its underwriter, BofA Securities, the option to purchase another ~40M shares.

As part of the offering, Lucid (LCID) is giving its majority shareholder, Ayar Third Investment Company, an affiliate of Saudi Arabia’s Investment Fund, the opportunity to maintain its 59% stake in the company with the purchase of 374M shares through a private placement. The combination is expected to raise ~$1.67B in net proceeds.

The offering highlights the company’s dependence on Saudi funding as it ramps up production and prepares to launch its mid-sized platform in late 2026. Despite another $1.5B investment from the Saudis in August, Lucid (LCID) is not expected to be cash flow positive until FY28 and remains unprofitable even as deliveries and revenue grow. While the financial commitment by the Saudis gives the company a financial runway of about a year, how long they will continue to inject the company with cash remains unclear given the shift in oil prices and economic policies in Saudi Arabia which encourage more domestic investment.

Lucid’s (LCID) precarious financial position disguises what industry analysts consider a very attractive offering. The Lucid Air, which generates most of the company’s sales, boasts advanced technology, a driving range of 512 miles that exceeds its competitors, and an interior that competes with high-end Mercedes (OTCPK:MBGAF), (OTCPK:MBGYY) and BMWs (OTCPK:BMWYY). Lucid Air’s closest competitor is the Tesla (TSLA) Model S, which is comparably priced. Unfortunately, Lucid’s (LCID) lack of scale means Tesla (TSLA) continues to sell significantly more cars. In 2023, Tesla delivered 68K vehicles, compared to just 6K from Lucid (LCID). To open up opportunities among price sensitive consumers, Lucid (LCID) plans to launch a mid-sized crossover priced at under $50K to compete with the Tesla Model Y, and has set a production target for all vehicles of 9K in 2024.

Analysts are mixed on Lucid (LCID) with Seeking Alpha authors rating the stock as a Sell, while Wall Street analysts give the stock a Hold rating. Seeking Alpha’s Quant rating views Lucid (LCID) as a Hold. Short interest in Lucid (LCID) currently stands at 27% with the stock down 16% on Thursday.