On June 26, Lucid Group, Inc. (NASDAQ: LCID) announced it had reached an agreement to supply powertrain technology to Aston Martin Lagonda Global Holdings plc (LSE: AML) for the high-end British automaker’s future lineup of electric vehicles (EVs). Aston Martin plans to begin selling its first EV in 2025.
The accord is constructive for Lucid, but it should be considered only a mild positive. In exchange for access to Lucid’s “high performance” technology, Aston Martin will give Lucid 28.4 million of new ordinary shares – currently worth US$130 million, equivalent to a 3.7% stake in Aston Martin – plus US$132 million in cash over a multi-year period. In addition, Aston Martin commits to pay Lucid US$225 million to buy powertrain components.
The duo place the total value of the agreement at around US$450 million.
Lucid gained US$0.17 on the news, after rallying as much as US$0.81 during the trading day. Much of the gain was likely due to short covering. About 155 million of Lucid’s shares are sold short (as of May 31, 2023), or nearly 22% of its float. Factoring in Lucid’s 2.272 billion shares outstanding, the US$0.17 share price gain equates to an increase of US$386 million in its market capitalization, about equal to the value of the deal.
Receipt of US$132 million of cash over a few years is unlikely to materially impact Lucid’s concerning cash burn situation. Lucid burned US$1.04 billion of cash in 1Q 2023 (defined as operating cash flow less capex) after US$940 million and US$870 million cash burns in 4Q 2022 and 3Q 2022, respectively.
Furthermore, Lucid’s quarterly free cash flow deficits in the second, third and fourth quarters of 2023 seem likely to be consistent with the 1Q 2023 shortfall based on management’s recently reduced full-year 2023 vehicle production estimate of “more than 10,000” units. Lucid produced 2,314 EVs in 1Q 2023. In early May, Lucid reset its 2023 manufacturing estimate to “more than 10,000” units from its previous forecast of 10,000-14,000 cars.
A skeptic could conclude that the Lucid-Aston Martin transaction was done primarily at the behest of the Saudi Arabia’s Public Investment Fund (PIF). The Saudi fund holds about a 61% controlling stake in Lucid and a 17% position in Aston Martin. The PIF is the British carmaker’s second largest holder. Lucid stock has declined about 18% so far in 2023, while Aston Martin has more than doubled. Note that, per the deal, shares and cash are being transferred from the better performing entity to the poorer performer.
Even factoring in the (small) benefits of the deal, Lucid is a richly valued stock. Based on its current US$5.64 price, its enterprise value is about US$9 billion. Lucid’s revenue over the twelve months ended March 31, 2023 totaled about US$700 million, meaning the stock trades at an enterprise value-to-revenue multiple of around 13x.
Phrased another way, Lucid’s adjusted EBITDA loss over the last twelve months is more than US$2.2 billion, and quarterly losses have been steepening in recent quarters — US$644 million in 1Q 2023; US$624 million in 4Q 2022; US$553 million in 3Q 2022; and US$414 million in 2Q 2022. The stock market’s awarding a US$9 billion valuation to a company with such a cash flow profile is difficult to reconcile.
Lucid Group, Inc. last traded at US$5.64 on the NASDAQ.
Information for this story was found via Edgar and the sources and 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.
