Lucid Group (NASDAQ:LCID) stock fell following a wider-than-expected loss and missed revenue expectations. The electric vehicle maker announced they would reduce production — by as much as 40%.
Despite that whopper, there were certainly bright spots to look forward to in the latest earnings report. During the earnings call, CEO Peter Rawlinson highlighted demand for its Lucid Air models, available for a year. Sales of the model are impressive, and there’s also high demand for pre-orders. This is not surprising given that the product has been sold out since launch.
In addition, Lucid had cash and equivalents worth $6.26 billion in the bank and the company’s balance sheet is very strong, Rawlinson said. That is more than enough cash for the company’s production schedule.
Lucid’s backlog of orders currently sits at 25,000 vehicles. Assuming that Lucid can produce enough to meet this demand, that would mean around $2.4 billion in future revenue. Reservation for its Air model grew by about 17% from November to now.
However, investors were unhappy that the production estimates were lower than initially thought. The after-market trading for Lucid was brutal. After opening at $29.61 and falling to $25.24, traders were on the brink of panic trading before the stock price recovered (see chart below).
Understandably, the latest earnings report is a misstep for the company. Expect the stock to continue losing steam in the coming days. With a reduced production budget, things will remain bleak for the foreseeable future. But if you are willing to take risks and have a long-term approach to investing, LCID stock offers many positives.
Making Sense of Production Reduction
The worst news coming out of the earnings report for LCID bulls was the production shortfall. However, it is important to make sense of this development. Lucid management blamed industry-wide supply chain problems for the downgraded production estimates.
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It is interesting that shortages so far have not been of the semi-conductors or battery components, but rather more common items, such as carpets and windshield glass. Having a vertically integrated manufacturing process enabled Lucid to address the shortage of chips affecting the industry.
Sherry House, CFO of Lucid, recently noted the long delays in securing certain parts, saying that in some cases, she was forced to buy them from third-party vendors and faced a 72-week lead time for delivery. Rawlinson stated that some parts face a shortage, none of which are at the core of their business.
Even though there’s a shortage of some exterior components, Lucid has declared quality over quantity and accepts the delays instead of lowering its standards.
The raw materials used in the supply chain are affected by various factors. These can include changes in policies and politics, natural disasters and more. Just this week, Volkswagen (OTCMKTS:VWAGY) idled two plants in Germany after fighting in Ukraine prevented exports of cable bundles made there by a supplier.
Rawlinson and House reported the supply chain would remain challenging for the near term before normalizing in the second half of 2022.
The delays are putting more pressure on a company already under pressure. Lucid recalled several vehicles due to safety fears. If an accident occurs, the cars’ steering systems may fail, increasing your risk of crashing.
Recent reports suggest that a supplier may have installed the front strut damper incorrectly because of an error in the original design. The recall is for 203 cars, and it’s estimated that just 1% of those have the faulty part installed.
No Lack of Cash
LCID stock has been trading down for the past few weeks. However, there are a few positive developments worth noting.
Lucid has inked an agreement to open a manufacturing plant in Saudi Arabia. The company hopes this will be their first site outside the United States. The Saudi Public Investment Fund (PIF) is the largest shareholder (60%) in the EV manufacturer, making the manufacturing plant a strategic investment.
The company’s financial report shows great progress, albeit slower. The EV maker produced revenue of $26.4 million in the fourth quarter. For a budding electric car company, delivering 125 cars after building 400 total is a significant milestone.
Lucid has not been able to turn a profit so far, but this may be due to the unreliable nature of their deliveries. Revenue costs came to $151.5 million for the fourth quarter, and research costs were $163.6 million, with SG&A reaching $137 million for that same period – making it unlikely that they will show a profit anytime soon.
This means that Lucid incurred an operating loss of $485.7 million for the quarter – in financial terms, the company lost $3.9 million for every car sold in the final quarter of 2021.
We might think that a company with $2.58 billion in negative operating cash flow is a lot, but Lucid had $6.26 billion in cash and equivalents at the end of 2021, so their cash isn’t lacking at all. The company may have some funding left over even if sales don’t eventually cover its expenses.
Overall, Lucid customer reservations have now risen to 25,000 units for an estimate of potential sales of more than $2.4 billion.
LCID Stock Remains Aggressive Play
I commend InvestorPlace contributor Thomas Niel for giving a spot-on analysis of LCID stock on the eve of its earnings results. He also predicted that the stock could fall to $10 per share. One should not think that this is out of the question.
The earnings report was abysmal on several levels for the electric vehicle maker. Plus, geopolitical tensions between Russia and Ukraine will continue to weigh down heavily on growth stocks. In addition, the Federal Reserve’s plans to raise rates may be more extreme than we expect.
All in all, it is a tough time for LCID stock. The markets are unforgiving when it comes to unprofitable companies at the moment. Therefore, expect the stock to continue losing steam in the quarter. It is best to have a wait-and-watch approach in these cases.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
