Lucid Group: Near-Term Equity Offering Seems Likely

On August 3, Lucid Group, Inc. (NASDAQ: LCID) reported 2Q 2022 results that must be considered extremely disappointing in almost all dimensions. The company dramatically cut its already reduced 2022 production guidance and burned through US$823 million of cash in the quarter, an enormous problem which promises to worsen further and seems likely to force the company to raise substantial equity capital in the near term.

Citing the familiar refrain of “supply chain and logistics challenges,” Lucid cut its full-year 2022 production forecast in half; it now expects to manufacture 6,000-7,000 Lucid Airs this year. In early May, the company had reaffirmed plans to produce 12,000-14,000 vehicles in 2022. Any manufacturing company’s revising current year production guidance by this magnitude is quite unusual (and inspires little confidence). In late February 2022, Lucid made its initial 2022 production estimate reset to 12,000-14,000 vehicles from 20,000.

Lucid’s manufacturing woes were seemingly telegraphed in late May when Business Insiderreported that the company had replaced its manufacturing chief, Peter Hochholdinger, with another executive, Nicolas Minbiole. Mr. Minbiole had been Lucid’s Vice President of Global Quality and now apparently heads up its manufacturing operations and supplier relationships.

Investors should note that Lucid’s producing, say, 6,500 cars this year, is no lay-up. In 1H 2022, the company manufactured only 1,405 vehicles and delivered 1,039 (679 in 2Q 2022 and 360 in 1Q 2021).  So, to meet its goals, Lucid must produce about four times as many vehicles in the second half than it did in the first.

Lucid burned cash in 2Q 2022 at an even more alarming rate than in 1Q 2022. The company’s operating cash flow shortfall plus capital expenditures totaled US$823 million in 2Q 2021, notably worse than US$680 million in 1Q 2021. In turn, Lucid’s cash balance plummeted US$1.1 billion quarter-to-quarter in 2Q 2022 after falling US$870 million in 1Q 2022.

Full-Year 2022 GuidanceJune 30, 2022March 31, 2022December 31, 2021September 30, 2021
Lucid Air Vehicles Delivered6793601250
Lucid Air Vehicles Produced6,000-7,0001,405 (B)
Revenue$97,336 $57,675 $26,392 $232 
Operating Income($559,199)($597,530)($485,684)($497,050)
Operating Cash Flow($513,628)($494,639)($312,733)  (A)
Capital Expenditures($2,000,000)($309,800)($185,082)
Adjusted EBITDA ($414,082)($383,781)($299,583)($244,962)
Cash – Period EndSufficient liquidity well into 2023$4,294,082 $5,391,844 $6,262,905 $4,796,880 
Debt – Period End$1,999,234 $1,998,571 $1,997,057 $7,955 
(A) Operating cash flow was negative US$745.4 million in the nine months ended September 30, 2021. (B) 1,405 vehicles were produced in the first half of 2022.

Lucid predicts that its capital expenditures will total US$2 billion in 2022 implying that such spending in the second half will accelerate to about US$1.5 billion. If the company’s operating cash flow deficit were to hold at around US$500 million per quarter, Lucid’s cash balance could fall to less than US$2 billion by year-end 2022 from US$6.3 billion at December 31, 2021. This prospective remarkable drop seems likely to force Lucid to raise new equity capital.

A factor which mitigates an investor‘s adopting too negative a stance on Lucid is its high short interest and the consequent potential for a short squeeze. As of mid-July, about 22% of its float was sold short.

Given the production woes and cash flow difficulties it faces, amplified by the stock market’s reduced willingness (certainly versus last fall) to confer high valuations on money-losing companies, Lucid stock looks quite expensive. Based on consensus 2023 estimated revenue, Lucid trades at an enterprise value-to-estimated 2023 revenue multiple of around 8x. By comparison, another leading electric vehicle OEM start-up, Rivian Automotive, Inc. (NASDAQ: RIVN), trades at a ratio of less than 3x.

Lucid Group, Inc. last traded at US$18.05 on the NASDAQ.

Information for this briefing was found via Edgar, Bloomberg, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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