Lucid Motors (NASDAQ:LCID) stock is up nearly 4% today on reports the electric automaker has secured an order to provide the government of Saudi Arabia with up to 100,000 vehicles.
The Newark, California-based company said that the government of Saudi Arabia has entered into an agreement to buy up to 100,000 of its electric vehicles over the next 10 years.
That’s a huge order for Lucid Motors, a startup focused on making high-end electric sedans and SUVs. Year to date, LCID stock has declined 52% to $18.30 a share.
What Happened With LCID Stock
News of the Saudi government’s order is not that surprising given that the country’s public wealth fund has a 62% stake in Lucid Motors. The company only began production of its first electric vehicle, the Air luxury sedan, last September. However, the Lucid Air was named MotorTrend’s “Car of the Year” and has won numerous other industry accolades.
Under terms of the deal, Saudi Arabia’s Ministry of Finance will purchase at least 50,000 Lucid vehicles over the next 10 years. Over that time period, it will have an option to purchase another 50,000. These vehicles will include those built in Arizona, as well as at a new factory the company plans to build within Saudi Arabia.
The Saudi government will initially order 1,000 to 2,000 vehicles per year from Lucid Motors, starting in 2023. Deliveries will gradually increase to between 4,000 and 7,000 per year starting in 2025.
Why It Matters
The order from the Saudi government is a boon to Lucid Motors and vote of confidence in its strategy and operations at a time when the company is ramping up both its production and sales. The sales to Saudi Arabia also provide Lucid with a regular and predictable stream of income.
However, Lucid Motors has reported some production issues in recent months, due mostly to global supply chain constraints. This past February, Lucid lowered its 2022 production target, saying it expects to build 12,000 to 14,000 electric vehicles this year. Previously, it forecast 2022 production of 20,000.
What’s Next for Lucid Motors
LCID stock gets a nice lift today on news of the big order from the Saudi government. For shareholders, today’s rise is no doubt welcome news.
However, in the long term, Lucid Motors will have to overcome global supply chain constraints and get its production back on track if it hopes to achieve sustained growth in its share price.
On the date of publication, Joel Baglole 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.