Luxury Electric Vehicle Maker “Lucid” Has a Demand Problem

Luxury electric vehicle manufacturer Lucid It appears that there is a problem with the demand.

During its ahref=”https://www.cnbc.com/2023/02/22/lucid-lcid-earnings-q4-2022.html”>fourth-quarter Earnings Report Wednesday, it was “over 28,000” Reservations for the Air sedan are now open as of February 21st. It was quite surprising, considering the fact that the company had claimed to have made reservations for its Air sedan. “over 34,000” Reservierungs in November, delivered There are less than 2000 vehicles The fourth quarter.

Even more surprising: Lucid said it plans to build just 10,000 to 14,000 vehicles in 2023, far fewer than the roughly 27,000 Wall Street analysts had expected — and than the roughly 34,000 vehicles per year that Lucid’s factory is set up to build.

Since Wednesday’s report, shares of the company have fallen by around 15%.

Lucid had to go through a difficult road to get the recognition he deserved. Air into production. The company spent most of the first 2022-half of its budget a href=”https://www.cnbc.com/2022/02/28/lucid-slashes-2022-vehicle-production-forecast.html”>scrambling To secure key components And a href=”https://www.cnbc.com/2022/08/03/lucid-lcid-q2-2022-earnings-and-production-forecast.html”>untangling Logistics snags. It seems that production is running more smoothly than ever, but it now faces a new problem: Not enough reservations are being converted to orders.

CEO Peter Rawlinson admitted this during the earnings call, reminding listeners that reservations don’t have to be binding.

“We’ve solved production. That is not the gating issue here now,” Rawlinson stated. “My focus is on sales. And here’s the thing: We’ve got what I believe to be the very best product in the world. … Too few people are aware of not just the car, but even the company.”

Rawlinson stated that he believes this to be true “entirely solvable problem” Plans to put emphasis on “amplifying customer awareness” In 2023.

It might help to do more marketing. However, Lucid’s vehicles aren’t selling as fast as they expected. This raises serious questions for investors.

The first thing to do is determine the size of Lucid’s market potential. An estimate of the market size is necessary to estimate how Lucid might grow. “total addressable market,” The company may have overestimated its prospects on this front, as its factory is designed to make many more vehicles than the ones it is currently building.

Lucid’s earnings call revealed that it is not easy to run an auto factory at a low capacity. Chief Financial Officer Sherry H. admitted this.

“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,” House

This leads to another question: How long Lucid will have to operate its factory at loss? Or, put another way, how long will it take Lucid to get to profitability — and how much money will it have to raise between now and then?

John Murphy, Bank of America analyst, has been bullish about Lucid for a long time. However, in a note to investors after Lucid’s earnings report, Murphy reduced the bank’s rating of the stock from buy to hold. Murphy stated that Lucid will not break even before 2027 and that it will need more capital to do so sooner than he expected.

Lucid’s investor is deep-pocketed. Saudi Arabia’s Public Investment Fund owns about 62% of Lucid, and has shown — most recently in December, when it An additional $915 million was invested — that it’s still willing to fund the company. Lucid should be financially sound as long as the Saudi fund is backing it.

But the road to profitability — and to a big payday for Lucid’s investors — is now looking longer.