Lucid Group: Be Greedy When Others Are Fearful
Contributor since 2006 / 3191 Followers
Summary:
- Lucid Group produced 7,180 EVs and delivered 4,369 EVs in 2022 in an attempt to scale production and reach mass scale.
- Lucid stock fell after Q4 2022 earnings on lower 2023 production guidance and increased annual cash burn.
- I’m being greedy when others are fearful, even though bankruptcy risk is a serious concern for Lucid Group.
Gregg DeGuire
Lucid Group, Inc. (NASDAQ:LCID) is my single largest position, and I even added more shares after the latest Q4 2022 earnings release. I know many of you are getting impatient with Lucid’s slow production and may have considered cutting your losses and dumping your LCID stock in frustration.
Wall Street responded negatively to the latest earnings report and dumped the stock in response, but I actually thought the Q4 2022 report was quite bullish.
Lucid’s Q4 2022 Earnings Breakdown
Lucid hit several milestones during the Q4 2022 earnings report. Q4 2022 revenue reached $257.7 million (up 890% YoY), while the company made several key changes to increase production within management.
Net losses grew to $472 million (-$0.28 per share), but Lucid CFO Sherry House addressed the growing losses in the Q4 2022 earnings transcript:
As we produce vehicles at low volumes on production lines designed for higher volumes, we have and we will continue to experience negative gross profit related to labor and overhead costs. However, as we scale production, we would expect to see economy of scale benefits.
– Lucid CFO Sherry House on Lucid Q4 2022 earnings call.
So many exciting developments took place, including the company’s first Lucid deliveries to Europe and Saudi Arabia, updates on the start of Project Gravity SUV production in early 2024, and more details about the Saudi PIF investment.
Big concerns about cash burn were addressed, and the company finished the year with $4.9 billion in cash on hand. Net losses reached $1.9 billion in 2022, so I estimate that Lucid has enough cash to make it until Q2 2024 at the bare minimum.
Lucid Deliveries Are Up 3,315% YoY
Annual production and deliveries are the key metrics that I pay attention to when it comes to electric vehicle (“EV”) stocks.
| Year | Production | Deliveries |
| 2022 | 7180 | 4,389 |
| 2021 | 279 | 125 |
Lucid continues to ramp up production while taking its time to properly produce and deliver these electric vehicles. It seems that Lucid is obsessed with quality at the moment over raw output. Perhaps Lucid wants to make the “perfect EV” to benefit from word of mouth.
Declining Reservations Is Misleading
One of the bearish sentiments during the Q4 2022 earnings call was the decline in reservations. Lucid reported 28,000 reservations, which is down significantly from the previously quoted 34,000.
However, I believe this is a macro issue that’s tied to the overall economy. Many consumers would rather save their cash during these unsure economic times instead of splurging on a $100,000+ electric car.
Lucid has yet to scale its cheapest EV, the Lucid Air Pure, and I’m not surprised consumers are backing away from an EV priced well over $100,000.
The 28,000 reservations do not include the 100k order from Saudi Arabia, so I believe Lucid has several quarters to fulfill the current demand.
128,000 reservations is a more accurate number, but Lucid won’t be able to satisfy demand until the Saudi factory is complete.
LCID Shares Are Approaching Fair Market Value
During its early CCIV days, Lucid stock was caught in a massive EV bubble that popped during the 2022 tech stock crash. However, the recent selloff makes LCID stock look extremely attractive under $9.
The company exceeded its production goal in 2022 and could do the same in 2023. If Lucid produces over 14,000 EVs, then annual revenue could hit $1.35 billion for 2023.
LCID stock could trade at a forward P/S ratio of 12 by the end of the year. As long as the Fed continues hiking interest rates, then EV stocks won’t soar to the moon anytime soon.
LCID stock would be fairly valued at around $6 per share if we used the Tesla, Inc. (TSLA) P/S ratio of 8 as an industry benchmark.
Buying Lucid stock now would mean paying a 33% premium on its current fair value, but I don’t expect LCID stock to fall below its long-term support level of $6.
Risk Factors
Will Lucid Group, Inc. go bankrupt and out of business? I think that’s the main worry for long-term LCID bulls. While the company made a huge improvement in terms of net losses in 2022, I don’t see any chance of positive EBITDA until Lucid can produce EVs overseas at a much lower cost.
Gross margins are negative 58 percent, which is a recipe for disaster. I’m not sure when the company will actually make a profit on any of its vehicles.
Lucid may dilute shareholders with more stock sales or beg the Saudi PIF to bail them out once cash runs low.
The good news is that the Saudi PIF has deep pockets, and even Cristiano Ronaldo moved to Saudi Arabia to join the Saudi Pro League in 2022.
Saudi Arabia has a bright future, and they may be willing to throw an unlimited amount of cash at Lucid Group, Inc. to keep it afloat. The Saudi PIF currently owns 65% of LCID common stock, but management wouldn’t comment on a potential buyout.
Be Greedy When Others Are Fearful
Lucid produces the best EV on the planet at the moment, yet the company is trading near penny stock price ranges. LCID is still my favorite multi-year stock pick due to its impressive Lucid Air electric vehicle and low overall market cap when compared to the likes of Tesla.
I’m continuing to accumulate shares to reduce my overall cost basis by averaging down. My average cost basis is $21, so I have a lot of work to do to get my average cost basis down.
I’m being greedy when others are fearful even though the future for Lucid Group, Inc. is unclear at the moment. I remember how early Tesla investors felt in the beginning, which is why buying Lucid stock could be like betting on Tesla’s IPO in 2010.
With great risk comes great reward, and I don’t mind betting on the producer of the best EV on the planet, even if everyone else thinks I’m wrong.
Disclosure: I/we have a beneficial long position in the shares of LCID either through stock ownership, options, or other derivatives. 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.