Lucid Now Has a Big Tesla Problem (NASDAQ:LCID)

As the battle in the electric vehicle space was set to intensify this year, the leader in the space was Tesla (TSLA) took a big shot this month. Tesla announced a series of big prizes Cutbacks across the globe to significantly increase its shipment volumes. While a lot of the headlines focused on the mass-market Model 3 and Y, it was the price cuts for the Model S and X that caught my attention. While Tesla’s two luxury vehicles won’t have a dramatic impact on Tesla in the near term, there’s another name that’s definitely affected, and that company is Lucid (NASDAQ:LCID).

Lucid recently reported its fourth quarter of 2022 Delivery and production quantities. The company produced nearly 3,500 vehicles, a new quarterly record that’s up more than 50% sequentially. Deliveries also completed the year at a new record of 1,932 units, up from less than 1,400 units in the third quarter. For the full year, Lucid came in with production of 7,180 units, beating guidance, which management twice reduced (here and here) from 20,000 to 7,000. Shipments for the year totaled 4,369, so Lucid ended the year with a small inventory that was probably on its way to customers.

The problem for Lucid is that delivery numbers haven’t exactly been great, although expectations have dropped tremendously over the course of 2022. As the chart below shows, street revenue estimates have more than halved over the last 13 months current average estimate the lowest I’ve seen so far. While Lucid will continue to report huge percentage revenue growth numbers for some periods to come, that’s only because last year’s quarters had next to nothing for total revenue.

As Lucid looks to increase volume, management knows prices need to come down. The Air Dream Edition started at $169,000, but the Air Pure version will start at around half that. The Air is Lucid’s version of the Tesla Model S, and while the Lucid has a longer range, Tesla has a much better service infrastructure along with its massive Supercharger network. Lucid will be opening reservations for its Project Gravity SUV, which will be a competitor to the Tesla Model X, in a few months.

Tesla refreshed the Model S and X a couple of years ago, although it’s taken some time to really ramp up production due to Covid and supply chain issues. Tesla delivered over 66,700 units of its two luxury vehicles last year, with a small inventory build at the end of the year. Which brings me to the recent price drops, which have been quite significant. For example, here’s what we saw in the United States:

• Model S LR: $104,990 to $94,990
• Model S Plaid: $135,990 to $114,990
• Model X LR: $120,990 to $109,990
• Model X Plaid: $138,990-$119,990

Obviously, at these prices, Tesla won’t see dramatic increases in volume like the Model 3 and Y price cuts might. However, these cuts to the S and X will only make Lucid’s growth plan a little more difficult, especially as Tesla begins shipping more S and X to international markets. We don’t have a 2023 guidance yet, but Tesla may be able to produce as many S and X vehicles in one quarter as Lucid does in a year. Investors will also be curious to see how many reservations Lucid still has, whether Tesla’s price will drop and/or economic worries will weigh on potential demand.

The problem for Lucid is that the Air is the company’s only vehicle right now, while Tesla could drop the prices of the Model S and X by another $20,000 if it wanted to, and it wouldn’t make much of a difference. In my previous article about Lucid, I explained how bad the financial situation was. In the first nine months of last year, the company lost over $1.84 billion, and Lucid burned nearly $860 million in cash in the third quarter alone.

When I wrote this earnings article, Lucid announced that it would raise more capital. It ended up being more than $1.5 billion new money was brought in, although this led to some dilution. Adding those funds to the third-quarter total would have given the company a total of about $5.37 billion in cash, but that was before a fourth-quarter burn. Lucid shouldn’t need any more capital for the next quarter or two, but it may need another raise later this year or in early 2024 if cash flow trends don’t improve significantly. The company has a major backer behind it in the Saudi Arabia Investment Fund, which bolstered its strong position in the recent capital raise.

As the number of outstanding shares continues to climb, bets against the name have also increased recently. As the chart below shows, short interest in Lucid increased fairly steadily throughout 2022, ending the year at a new high. With more than 28% of dear swimmer In short, Lucid is one of the most commonly shortened names today. I’m curious to see if the short interest will surge even higher as we get the next update or two reflecting recent Tesla price cut information.

As for Lucid shares, they’ve started the year in the right direction, with growth stocks like Tesla recovering and a solid earnings report from Netflix (NFLX) who helped the tech room last Friday. However, Lucid’s closing price last week at $7.82 is still very close to the low end of its 52-week range, which ranges from just over $6 a share to almost $40 a share. the average price target $14.14 means huge upside potential from here but that number was over $40 a year ago and see where we are now.

I can’t justify this road average rating at the moment. As a reminder, we’re talking about a company that only surpassed its 2022 production target after cutting it by 65%. Lucid hasn’t proven it can grow its volume very quickly, and you’re still dealing with losses and cash burn. Assuming the company hits 90% of street sales expectations in 2024 and applying the Tesla price to the sales multiple, I get a valuation of $13.22 billion. Based on a stock count that could be around 1.9 billion by then, let’s look at a stock that’s under $7. The bears might even argue that a discount on Tesla is warranted given the market niche Lucid is currently targeting.

At the end of the day, Lucid is in a very difficult position now that Tesla is cutting prices on its luxury vehicles. While Lucid met its twice-cut 2022 production guidance, shipments so far have still been disappointing and competition isn’t exactly easing. While November’s capital raise will allay funding worries in the near term, this is still a big-money-losing, big-money-burning name. With Tesla able to flex its muscles even more at the top end if it wants to, we’re likely to have another tough year ahead for Lucid.