Luxury EV maker Lucid appears to have a demand problem

People test drive the Dream Edition P and Dream Edition R electric vehicles at the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.

Caitlin O’Hara | Reuters

Luxury electric vehicle manufacturer Lucid appears to have a demand problem.

The company said on Wednesday during its fourth-quarter earnings report that it had “more than 28,000” reservations for its Air sedan as of Feb. 21. That came as a surprise, given that the company claimed “more than 34,000” reservations in November and delivered fewer than 2,000 vehicles in the fourth quarter.

Even more surprising, Lucid said it plans to build just 10,000 to 14,000 vehicles by 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 will build.

Shares of the company are up nearly 17% since Wednesday’s report.

Lucid faced a tough road getting the Air into production. The company spent much of the first half of 2022 struggling to secure key components and resolve logistical issues. Now that production is running more or less smoothly, there seems to be a new problem: not enough of those reservations are turning into orders.

CEO Peter Rawlinson acknowledged this on the earnings call when he reminded listeners that reservations are not binding.

“We’ve solved the production. That’s not the gating problem here now,” said Rawlinson. “My focus is on sales. And this is the point. We have what I think is the very best product in the world. … Too few people know not only the car, but even the company.”

Rawlinson continued that he believes this is a “fully solvable problem” and plans to focus on “raising customer awareness” in 2023.

More marketing could help. But demand for Lucid’s vehicles is clearly not picking up as quickly as the company expected, raising tough questions for investors.

First, how big is Lucid’s potential market? Any estimate of how much Lucid could grow has to start with an estimate of its “total addressable market,” and it seems the company’s estimates were too rosy on that front, as the factory is set up to produce many more vehicles then it is now building.

Running a car plant well below capacity isn’t exactly a route to profitability, as CFO Sherry House admitted during Lucid’s earnings call.

“Because we produce low volume vehicles on production lines designed for higher volumes, we have and will continue to experience negative gross profit related to labor and overhead costs,” said House.

That leads to a second, related question: How long will Lucid have to run its factory at a loss? Or put another way, how long will it take Lucid to be profitable – and how much money should it raise between now and then?

Bank of America analyst John Murphy has long been bullish on Lucid, but in a message to investors following Lucid’s earnings report, he downgraded the bank’s holding stock rating from buy. Murphy wrote that he now thinks Lucid won’t break even before 2027 and the company will need to raise more capital sooner than he previously anticipated.

The good news is that Lucid has an investor with big pockets: Saudi Arabia’s Public Investment Fund owns about 62% of Lucid and has shown – most recently in December, when it invested another $915 million – that it is still willing to finance the company. . As long as it has the backing of the Saudi fund, Lucid should be able to continue.

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


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