Could Lucid Motors Potentially Turn Investors into Millionaires?
When searching for a stock with the capability to make someone a millionaire, I usually gravitate towards companies with small market valuations, significant growth rates, and a clear pathway to profitability. With shares of Lucid Group (LCID) having plummeted an astonishing 97% from their all-time high of $58 (achieved in early 2021), this company at least meets one of these criteria. But how about the other requirements? Let's delve deeper into the pros and cons of this embattled electric vehicle manufacturer.
What became of Lucid's initial investment thesis?
Lucid entered the market in 2021 during the peak of the electric vehicle (EV) craze, much like artificial intelligence is today. Tesla, the industry leader, had just become profitable while traditional automakers like Ford Motor Company and General Motors announced plans to redirect financial resources towards this emerging market sector.
In those early days, Lucid seemed poised to fill a void in the market. Similar to Tesla, Lucid was a fresh, independent EV company devoid of much historical baggage. However, what truly set Lucid apart was its commitment to the ultra-luxury EV market, as demonstrated by its flagship offering, the Lucid Air, which led the industry in terms of range, power, and interior quality.
Fast-forward to 2024, and the EV industry has undergone a significant transformation. Growth has largely shifted from newcomers to established automakers, utilizing their recognized brands, distribution networks, and service capabilities to drive consumer enchantment. Worryingly, the luxury segment is experiencing an influx of competitors, with brands like Cadillac and Mercedez-Benz joining the fray.
Can Lucid emerge victorious in the luxury fight?
Lucid's third-quarter earnings provide a glimmer of optimism. Deliveries of vehicles increased by 91% year-over-year to 2,781, while revenue swelled by 45% to $200 million. Management is confident that further expansion will be achieved with the introduction of Lucid's latest offering, the Lucid Gravity SUV, scheduled to enter production this year.
SUVs and crossovers are witnessing a surge in popularity in North America, and the Gravity may prove crucial to Lucid's survival, providing an opportunity to enter a larger and more lucrative market segment, as demonstrated by the success of the $58,900 (base) Cadillac Lyric (third-quarter sales skyrocketed by 139% to approximately 7,000 units).
Lucid is currently accepting advance orders for the Gravity at a staggering $94,900 for the "Grand Touring" trim. The more affordable "Touring" trim will be available at $79,900 by late 2025.
Lucid will need to justify its substantial pricing through superior performance and features. The good news is that the Gravity Grand Touring will boast a range of 440 miles and 828 horsepower, significantly exceeding the peak-trim Cadillac Lyriq's range of 314 miles and 500 horsepower.
Is Lucid Group a millionaire-maker stock?
Investing often involves balancing risk and reward. While Lucid possesses significant potential, there are several reasons for concern, particularly on the financial front.
In the third quarter, Lucid reported an operating loss of $771 million. If this trend continues, it could lead to an annualized cash burn exceeding $3 billion - a staggering figure considering the company's reported cash and equivalent reserves of just $1.9 billion. Share issuances and sales will likely occur to address this cash shortage, resulting in further equity dilution for investors.
Even though Lucid's compact size and immense growth potential offer millionaire-maker prospects over the long term, the company's tenuous financial situation and the threat of dilution render it a risky gamble at the moment.
Given Lucid's operating loss of $771 million in the third quarter and a potential annualized cash burn exceeding $3 billion, managing its finances becomes crucial for its survival. Investors should consider whether they can tolerate the risks associated with share issuances and sales, which could lead to further equity dilution.
In the context of finance and investing, Lucid Group's financial situation requires careful consideration before deciding if it has the potential to become a millionaire-maker stock.
