Lucid is Looking Like A Clear EV Winner

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  • Lucid is in a better financial position than most upstart EV players
  • The near-term headwinds should matter little in the long haul
  • Lucid noted that its liquidity position will keep it running well into 2023

Like most electric vehicle plays, Lucid Group, Inc. (NASDAQ:LCID) has had its share of ups and downs. The luxury EV maker’s stock has made two trips to the $60 level only to reverse towards its early pre-SPAC days.

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Yet there’s a bigger picture here—that being the long road ahead for EV manufacturers. As government carbon emission initiatives shift into high gear in the second half of the decade, electric-powered cars and trucks are expected to play a powerful role.

The International Energy Agency’s (IEA) current Global EV Outlook highlights a growing list of subsidies and incentives that has consumers gravitating towards EVs in record numbers. At the same time, the list of EV models available for purchase at dealerships or online has swelled to around 450 compared to less than 100 in 2015.

So with demand and supply trends looking favorable, the EV industry is bound to produce multiple winners not named Tesla or NIO in the years ahead. But what has Lucid in the driver’s seat to emerge victorious?

Lucid Group Has Solid & Transparent Financials

For starters, Lucid is in a better financial position than most upstart EV players. It exited the second quarter with $4.6 billion in cash & cash equivalents. Compare this to the company’s $27.5 billion market cap, and you’ll see that cash represents 17% of its valuation. That’s some pretty cheap cash available for sale given the growth prospects.

Production of the flagship Lucid Air is off to a slow start relative to demand. Approximately 1,400 vehicles rolled off the assembly line in the first half of 2022 and less than 700 were delivered to customers in Q2.

Stack that up against Lucid’s 37,000-plus reservations and the impact of recent supply chain and logistic issues is clear. Management has reduced its full year production guidance to 6,500 units at the midpoint—a big reason why the stock has been stuck in neutral all summer.

The near-term headwinds should matter little in the long haul though because both the demand and financial strength are there. Lucid noted that its liquidity position will keep it running well into 2023. This is a healthy situation to be in, especially at a time when some competitors are fending off bankruptcy.

Lucid Group Vertical Integration A Big Plus

The good news with regards to the demand-supply imbalance is that Lucid’s core EV technology is developed and manufactured in-house at its EV powertrain factory in Arizona.

This is also where Lucid motors, transmissions, power inverters, and auto racing-inspired battery packs get made—not to mention its fast-charging Wunderbox system. These components get shipped off to the company’s car factory in neighboring Casa Grande, AZ.

Better yet, help is on the way. The Casa Grande facility is undergoing a Phase 2 expansion that will nearly triple its installed capacity to 90,000 Lucid Air and Lucid Gravity EVs. When you’re sitting on a backlog of 37,000 vehicles worth an estimated $3.5 billion in sales, a ramp in production can’t come soon enough.

Looking further ahead, increased capacity will also come from a brand new production facility in Saudi Arabia. Lucid just broke ground on the project so it’ll be a while, but once completed the Saudi Arabia facility is slated to boost annual capacity by some 155,000 vehicles. The leadership is essentially betting that if you build it, they will (continue to) come.

Bottom line: expanding in-house parts production and vehicle assembly should 1) make securing key materials and parts less of a problem and 2) improve Lucid’s ability to meet demand over time.

Lucid Group Industry-Leading Efficiency

The efficiency of Lucid’s EV technology is a differentiator that may be undervalued by the market. In the EV space, efficiency can be defined in a number of ways, including battery cost minimization, environmental impact, and reducing the customer’s total cost of ownership. Lucid’s technology sets out to accomplish all of the above.

At 4.6 miles per kWh, a measure of travel distance relative to energy consumption, the 4-door Lucid Air sedan has what the company calls “unprecedented efficiency”. While much of this relates to a low battery cost component of cost of goods sold (COGS), with Lucid, it's also about efficient vehicle design. Translation: the use of fewer battery cells per vehicle gives Lucid an industry leading range.

Granted, even the base model is expensive at $87,400, but the luxury features and 13-hour battery charge time make it well worth the sticker price to some affluent car buyers.

As expansion projects ramp production, Lucid will roll out its second offering, the Gravity SUV, which is targeted for the first half of 2024. If consumer interest in the Lucid Air is any indication, the waitlist for Gravity is likely to get heavy in a hurry.

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