- Lucid announced Q3 production and delivery figures, which, while showing meaningful growth from Q2’s levels, still highlight concerns.
- ASPs are likely to continue trending downwards as lower-priced trims gain share of Lucid’s vehicle mix in the upcoming quarters.
- Q3’s deliveries of 1,398 vehicles, along with a projected ASP near $136k, present the risk that revenues fall about 12% shy of expectations for $219 million.
- Lucid’s margin profile is very weak, with the startup reporting a -200% gross margin in Q2; as such, reaching positive gross margins will take multiple quarters.
- The lack of compelling evidence that has arisen since Q2’s end has maintained a sell rating on Lucid.
Lucid Motors’ (NASDAQ:LCID) stock continues to slide, falling nearly 40% since late July and reaching lows not seen since before the SPAC combination, dipping below $12 per share briefly late last week. While shares are near these low prices, it raises the question: is Lucid’s stock a buy?
Given the EV startup’s limited levels of deliveries and reduced production guidance, along with a higher valuation compared to peers and dilution potential, shares are still a bit risky and may not be a buy just yet at current prices as deliveries and revenues may continue to disappoint through Q4 and Q1 2023.
Lucid Q2 Recap
Here’s a brief recap highlighting some of the key items from Lucid’s Q2 report that raise more questions about the company’s progress and outlook, without digging too much into the details of the Q2 report:
- Revenues of $97.3 million, missing expectations for $157 million
- Reservations of 37,000 representing ~$3.5 billion in revenues
- Production cut of 50% from prior guidance to 6,000 to 7,000 vehicles
- Production levels practically flat q/q (~700 vehicles in Q1/Q2)
- Limited levels of deliveries to date, just 1,039 in 1H
Q3 Deliveries Show Growth, But Not Enough
For Q3, Lucid announced production volumes of 2,282 vehicles, with deliveries tallying 1,398 during the period. Production levels increased about 220% q/q, suggesting that Lucid might be on the right track in finally scaling production higher after a weak first half. Lucid confirmed its production outlook of 6,000 to 7,000 vehicles, which points to production volumes of 2,800 to 3,800 units in Q4, or about 49% at the midpoint.
Q3’s deliveries grew about 106% q/q from Q2’s 679 deliveries, recovering off of Q2’s slowdown, where vehicle deliveries looked to hit a wall during May and June. The weaker-than-expected Q2 projected Q3’s growth to be limited to ~1,800 units, as ASP calculations place the Grand Touring’s reservation figures around 4,800 to 5,500 units; however, deliveries failed to reach that mark.
The Q3 delivery numbers also provide an insight into revenue numbers, which again place emphasis on a very strong Q4 to put Lucid back on track to reach revenue targets.
For the first half of the year, Lucid generated $155 million in revenues on 1,039 deliveries. Lucid’s average ASP of $149,200 aligns with the product mix predominantly filled with the Air Dream in Q1 followed by the Air Grand Touring in Q2, weighing on ASPs. Q2’s reservation update placed Lucid’s reserved vehicle estimated ASP at ~$94,600, as Air Pure models are the majority of reservations.
For Q3, the trend of weakening ASP is expected to continue, as vehicles ordered after Lucid’s 10 to 13% price hike became effective June 1 are unlikely to have reached deliveries – Lucid had an estimated 4,800 to 5,500 backlog of the Grand Touring, of which it produced less than half of. ASPs are likely to dip further towards $136,000, placing projected Q3 revenues around $190 million.
Preliminary estimates for Q3 results place revenues around $219 million, placing additional risk to the downside as ASP and deliveries suggest revenues are likely to come in below this figure.
The “declining trend in ASPs and a higher volume of the lowest priced edition raises questions about gross and vehicle margin performance as Lucid continues to spend to scale and work through logistics and supply chain challenges.” Lucid is likely two to three quarters out, at a minimum, from reaching positive gross margins, and its operating expenses suggest a challenging path to reaching profitability with multiple vehicle launches slated throughout the next three to six years.
What To Watch For Moving Forward
Moving forward, there are multiple key factors that serve as headwinds to Lucid’s ability to scale, some of which are persisting from before Q2:
- Declining ASPs: as previously mentioned, Lucid’s ASPs have shown a decline as the vehicle mix is shifting to predominantly lower-priced trims such as the Pure, which account for an estimated ~55-60% of reservations. With the base pricing for the Pure at $87,400, shifting the production mix to the Touring and Pure in Q4 is likely to weigh on ASPs through 2023 since volumes of these lower-priced trims will scale as Lucid fills its order backlog. Lower ASPs are expected to weigh on revenues and margins – the entry-level Pure likely has the lowest margins of the four trims, given its pricing relative to the others. Delivery and pre-order concentration in the Pure can weigh on margins even as deliveries scale.
- Production volumes: Lucid’s “dramatic cut to outlook suggests deeper, persisting problems that are not quick to resolve” – logistics and supply chain issues will not allow deliveries to scale freely until 2023. Lucid had originally forecast 20,000 units for 2022, dropping that all the way down to 6,500 at the midpoint. In essence, Lucid has delayed the 20,000 volume target by almost a year, with deliveries projected to be ~25,000 next year, down from an original forecast for 49,000.
- Margins: Lucid’s -200% gross margin from Q2 also is a spot of concern, as it raises questions about the level of deliveries needed to reach gross profitability – Lucid is spending about $128,000 per vehicle produced, and delivery levels ~39% below production levels leave Lucid unable to record positive gross margins. Combining that level of spend with the decline in ASPs means Lucid may need to reach scales of ~10,000 units per month in deliveries to record gross profits; this may not happen until late 2023.
- An expensive valuation: at 2022’s projected $725 million in revenues, Lucid trades at a nearly 24x forward EV/revenue multiple. For 2023, Lucid trades at ~7.2x; EV leader Tesla (TSLA) trades at ~7.5x, Chinese peers XPeng (XPEV) and NIO (NIO) trade below 2x, Polestar (PSNY) at 4x, and Fisker (FSR) at 1x. Such an expensive valuation at the top end of peers raises a vital question: is Lucid worth the premium relative to peers – is Lucid worth equal to Tesla – given the challenges it has faced in scaling production and its weak margins, when compared to Tesla’s 1 million-plus annual volumes and targeted 50% annual growth rate at scale?
Aside from these headwinds, Lucid does have the ability to raise $8 billion from a mixed-shelf offering, should it decide to do so; cash is likely to fall below $3 billion this year at Lucid’s current rate of spending, so some capital raise (to the tune of $2-3 billion) may be likely in 2023. Backing from Saudi Arabia most likely eliminates the threat of out-and-out bankruptcy, while also providing a lifeline should the financial situation get dire.
Is Lucid Stock A Buy?
Lucid has fallen about 30% since Q2’s weak results, production cut, declining ASP signs, and other factors led to a sell rating on the stock. Lucid’s Q3 production and delivery updates have not quashed these concerns within the OEM’s ability to scale through the end of the year and into 2023, its largely negative margins, and the likelihood that Q3 revenues come in shy of expectations. As such, the current factors do not present enough compelling evidence to rate Lucid stock as a buy just yet.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.