Lucid Group (NASDAQ:LCID), sadly, delivered a disappointing supply card for the second-quarter yesterday (July 12) that calls into doubt the EV firm’s full-year steering, for my part. Lucid fell broadly in need of Q2 supply estimates and really noticed a quarter over quarter manufacturing decline. Lucid solely lately introduced that it was elevating $3.0B in new funds to finance its manufacturing ramp and worldwide enlargement, however the newest supply card strongly means that Lucid could not see as robust demand for its EV merchandise as initially assumed. Since yet one more steering revision has change into extra possible after the Q2 supply report, I’m downgrading Lucid from maintain to promote!
One other supply disappointment
After Lucid mentioned that it was going to enter the Chinese language EV market final month, I maintained a maintain score on the EV firm and its shares. Contemplating the newest growth, nevertheless, I’ve turned extra bearish.
Lucid’s supply accomplishments within the second-quarter had been extremely disappointing. The electrical car firm mentioned in a supply replace on Wednesday that it produced 2,173 electrical autos within the second-quarter and delivered 1,404 electrical autos. The supply achievement fell broadly in need of analysts’ expectations, which known as for a supply quantity of two,000 EVs in Q2’23. Lucid’s manufacturing quantity for the second-quarter truly declined 6% in comparison with the first-quarter, whereas the entire supply quantity remained virtually unchanged quarter over quarter.
Lucid produced 2,314 electrical autos within the first-quarter, which means the year-to-date manufacturing complete at the moment stands at 4,487 which is lower than half of Lucid’s 10 thousand EV manufacturing aim. With Lucid producing nearly 45% of its lowered manufacturing aim after six months, regardless of having no funding points, I consider demand for Lucid’s electrical autos will not be as robust because the market beforehand thought it was.
Lucid guided, initially, for a 10-14 thousand electrical car manufacturing quantity for the present fiscal yr, however the firm has softened its outlook when it submitted its first-quarter earnings: Lucid then mentioned it was seeking to simply ship “greater than 10 thousand” electrical autos in FY 2023. The gentle downgrade already raised some considerations that electrical car demand will not be as resilient as initially assumed. Value cuts in addition to excessive inflation and increasing product line-ups have weighed on the EV business and make it tougher for electrical car corporations to realize gross sales.
Lucid additionally lately introduced a strategic know-how partnership with Aston Martin, which can see Lucid promote powertrain elements and battery techniques to the British firm, and take a 3.7% stake within the model. Nonetheless, I consider the constant issues with the agency’s manufacturing ramp outweigh the advantages of an funding in Lucid.
Lucid’s valuation relative to different U.S.-based electrical car corporations
Because of Lucid’s Q2 supply replace, shares of the EV maker slumped 12% on Wednesday and the corporate’s disclosure created a big quantity of recent unfavorable sentiment overhang. With manufacturing ramping up a lot slower than projected, I additionally anticipate analysts to downgrade their income estimates for the electrical car firm… which could possibly be a unfavorable catalyst in itself.
Analysts at the moment anticipate Lucid’s revenues to develop to $2.63B in FY 2024, however the revision development for the EV firm has been very unfavorable after a collection of manufacturing estimate revisions in FY 2022 and this yr. The supply report for Q2’23 will possible result in additional income estimate draw back revisions, which I’d anticipate to weigh on Lucid’s valuation as nicely.
Shares of Lucid are at the moment valued at a price-to-revenue ratio of 5.0X (based mostly off of FY 2024 high line estimates) which nonetheless makes Lucid one of the costly U.S.-based electrical car corporations available in the market. Lucid can be not anticipated to be worthwhile till FY 2027 and a possible delay in profitability, as a result of slowing supply development, is more likely to be a unfavorable catalyst for shares as nicely.
Lucid’s danger profile
Lucid did increase $3.0B from buyers lately that included Saudi Arabia’s sovereign wealth fund and the corporate had roughly $3.0B of money on its stability sheet on the finish of Q1’23 (money/money equivalents in addition to quick time period investments) that ought to be certain that firm has sufficient liquidity to finance the ramp of the Lucid Air sedan till subsequent yr. Nonetheless, I consider Lucid’s supply numbers for Q2’23 have raised the chance that the corporate could should decrease its manufacturing outlook for FY 2023 once more, if demand falters. Since Lucid already downgraded its manufacturing outlook twice in FY 2022 and as soon as in FY 2023, I consider such an occasion would critically harm the corporate’s shares.
Lucid delivered but once more one other large disappointment on the subject of the corporate’s deliveries, and it was the ultimate straw for me: I bought. Though I like Lucid’s product portfolio, robust stability sheet and worldwide enlargement plans, I simply can now not ignore that Lucid retains disillusioned on the supply entrance. The newest supply report additionally strongly suggests, for my part, that Lucid is seeing weakening demand and that the excessive variety of reservations will not be essentially translating into product gross sales.
A possible unfavorable catalyst is that analysts are set to revise their income estimates to the draw back, which may put additional stress on the EV maker’s valuation. As the chance profile has clearly deteriorated, my endurance has additionally been exhausted. For these causes, I’m score Lucid a promote!