Share costs of Lucid Group ( LCID -7.93% ) tumbled 13.8% on March 1 in response to the corporate’s fourth-quarter 2021 and full-year earnings report and 2022 steerage. Traders had loads to be dissatisfied about, together with the corporate’s revised 2022 manufacturing aim of 12,000 to 14,000 autos in comparison with earlier estimates for 20,000 items.
The report and steerage had been a web destructive. However it will be a mistake to disregard some key short-term and long-term positives. Listed here are 5 inexperienced flags from Lucid’s earnings report and the way they match into the Lucid funding thesis.
Picture supply: Lucid Group.
1. Rising reservations
As of Feb. 28, Lucid reported over 25,000 reservations throughout its Pure line of electrical sedans, a 47% enhance from the 17,000 reservations Lucid reported in mid-November. Lucid stated that the reservations point out potential income of over $2.4 billion, or $96,000 per automobile. For context, contemplate that the lowest-priced trim of the Lucid Air — the Air Pure — goes for round $77,400, the Touring is $95,000, the Grand Touring is $139,000, and the Dream Version (which is offered out) was $169,000 — which exhibits that there is a good mix of Lucid reservations throughout totally different trims.
What’s extra, Lucid stated that it had acquired extra pre-orders for the Grand Touring than the Touring, an indication that clients need their automobiles sooner fairly than later and are prepared to pay for a costlier tier.
2. Air Pure stays on monitor for 2022
Lucid stated that it had begun deliveries of the Grand Touring and stays on monitor to start delivering the Touring and Pure later this yr. Because of supply-chain constraints, Lucid has but to ship all the pre-ordered Dream Version autos however indicated it was extra centered on constructing a model and sustaining high quality requirements than speeding out deliveries.
The Pure’s price ticket is rather more aggressive to different luxurious sedans than Lucid’s costlier trims. The automobile’s larger whole addressable market will put Lucid to the check in opposition to a bigger competitors set. On the finish of the corporate’s earnings name, CEO and CTO Peter Rawlinson expressed pleasure for the Pure and indicated that its profitable rollout is likely one of the firm’s central priorities proper now.
3. Provide-chain challenges ought to ease quickly
Lucid stated that its supply-chain challenges are concentrated in a handful of its 250 or so suppliers. What’s extra, Lucid is not encountering supply-chain issues for something basic, however fairly for completed elements and trim elements corresponding to glass, carpeting, and different beauty elements. On condition that Lucid’s supply-chain complications are as a result of commodities, not core know-how, the corporate expects challenges to persist via the subsequent few months however ease within the second half of the yr. That is a way more bullish forecast than what Tesla and Ford gave of their respective This fall and full-year 2021 earnings experiences.
Lucid has invested some huge cash and time into its electrical and engineering groups. It designs most of its printed circuit boards in-house and builds its personal battery packs and powertrain. Given its comparatively low manufacturing quantity and vertical integration, it is smart that Lucid might be able to emerge from the majority of supply-chain woes earlier than different automakers.
Picture supply: Lucid Group.
4. Flush with money
Lucid ended 2021 with $6.26 billion in money on its stability sheet because of elevating over $2 billion from convertible bonds on the finish of final yr. The corporate estimates 2022 capital expenditures of round $2 billion. Factoring in working bills, Lucid ought to have sufficient money to fund its enterprise in 2022 and most of 2023.
The corporate indicated it shouldn’t have any issues elevating extra money from capital markets and governments as wanted. Lucid’s timing to boost money from going public and from its bond providing was excellent in hindsight, contemplating as we speak’s rising rate of interest setting.
5. Saudi Arabia’s backing
Lucid introduced that it had signed agreements with the Ministry of Funding of Saudi Arabia, the Saudi Industrial Improvement Fund, and the King Abdullah Financial Metropolis to construct a manufacturing unit in Saudi Arabia. The manufacturing unit is anticipated to open in 2025 and produce 150,000 items per yr. Lucid at the moment has an annual manufacturing capability of 34,000 items at its Arizona manufacturing plant and is within the means of rolling out an growth that can enhance its manufacturing capability to 90,000 items per yr.
As of Dec. 31, Saudi Arabia’s Public Funding Fund holds a 61.7% stake in Lucid inventory. Saudi Arabia stays a stabilizing power for Lucid, each via its monetary help and its market potential.
Proceed with warning
Lucid traders have each proper to be dissatisfied within the firm’s now decrease 2022 steerage and its plans to roll out the extremely anticipated Gravity SUV within the first half of 2024 as an alternative of 2023. Lucid’s funding thesis is grounded in what the corporate may develop into in 5 to 10 years, not what it’s as we speak.
Regardless of the 5 inexperienced flags mentioned, many traders could also be finest both holding the electrical automobile inventory in a diversified basket of EV shares or taking a wait-and-see strategy to Lucid inventory to verify the corporate can hit its 2022 objectives earlier than leaping in.
This text represents the opinion of the author, who might disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even certainly one of our personal – helps us all assume critically about investing and make choices that assist us develop into smarter, happier, and richer.
