Lucid Motors Stock: What Went Wrong With This ‘Tesla Killer’?

In June 2021, shortly after its mega listing, Lucid Motors (LCID) CEO Peter Rawlinson said in an interview that the company was looking to make the electric vehicle (EV) industry into a “two-horse race” – with Tesla (TSLA), of course, being the other horse in the race.

Cut to 2023, and Lucid is looking to produce only 8,000-8,500 cars this year – which is even below the 12,000 that it projected at the beginning of the year, and a tiny fraction of the 49,000 that it predicted in 2021 ahead of the SPAC merger.

Far from being a potential “Tesla killer,” as it was labeled by some, Lucid is now looking like an “also ran” - and many fear whether the company will even survive the current EV industry slump. The recent departure of its CFO Sherry House is not building any confidence, either.

Here’s how Lucid Motors went from being a market favorite to its current state, where the stock has sunk to near-record lows - and, as of this Monday's rebalancing, will also be booted from the Nasdaq-100 Index ($IUXX).

Lucid Motors Was the Largest SPAC Merger

Lucid went public in 2021, during a time of widespread euphoria toward green energy companies. It was the biggest special purpose acquisition company (SPAC) merger up until that point, before Grab (GRAB) took the honors later that year – and Churchill Capital IV stock soared 550% on rumors that it would merge with Lucid Motors.  If anyone had any doubt about an EV bubble or a SPAC bubble, it became clearly apparent with Lucid’s mega-merger.

In a rare move, the investors in Lucid’s private investment in public equity (PIPE) transaction paid $15 per share, which - albeit below the then-SPAC stock price - was a 50% premium to the SPAC IPO price, and an affirmation by institutional investors (including Saudi Arabia’s sovereign wealth fund) in the company's valuation and outlook.

By November 2021, Lucid Motors' market cap topped $90 billion, and it looked set to join the league of $100 billion companies, like fellow EV startup Rivian(RIVN) - which also went public that month. In December 2021, Lucid joined the Nasdaq-100 as leading indices looked to make their composition more contemporary amid the green energy pivot. 

Just over two years later, Lucid Motors will be removed from the Nasdaq-100 Index. More than just the regular rebalancing of the index, it’s a story of how the company - which is led by a former Tesla engineer, and seems to have a promising product in its Air sedan - has fallen out of favor with markets.

What Went Wrong with Lucid Motors?

Nothing much has actually gone right for Lucid Motors over the last couple of years. To begin with, the global automotive industry faced a severe supply-chain crisis in 2021, which negatively impacted production. The Fed’s relentless rate hikes since 2022, which have since lifted benchmark rates to their highest level dating back to 2007, haven’t helped matters either for growth names like Lucid Motors.

And for Lucid, the troubles are also company-specific. First, and as it has also acknowledged, it hasn’t been able to build brand equity to the extent it would have wanted, which has resulted in fewer-than-expected sales. Lucid’s perennial cash burn and multiple rounds of capital raises have meant that the outstanding share count has exploded, leading to dilution for existing shareholders.

In my view, Lucid was a bit too optimistic about its cars and abilities, which led it to overpromise and underdeliver on multiple occasions. A mere look at its merger presentation would tell us how generously it benchmarked itself to Tesla, both in terms of car quality as well as valuations. What a lot of “wannabe Teslas” failed to envision or incorporate was Tesla’s manufacturing prowess and the brand power - which has largely withstood the self-inflicted damage by CEO Elon Musk, whose “free speech absolutism” hasn’t gone down well with many potential Tesla buyers. 

Will Lucid Motors Be Around by 2025?

While many EV and green energy companies might go bankrupt over the next couple of years, Lucid Motors might not - for the simple reason that it had a total liquidity of $5.45 billion at the end of September 2023, which it believes will fund the launch of its Gravity vehicles and also last into 2025.

It also has the “Saudi backstop,” as the oil-rich kingdom has so far looked amenable to fund Lucid Motors’ cash burn. Also, unlike many other startup EV companies that have, at best, “me-too” products - or worse, unviable and questionable products, Lucid Motors has a reasonably good offering. MotorTrend awarded the Car of the Year 2022 award to Lucid Air, and said, “The win affirms Lucid Air as the new EV benchmark, with the most advanced electric powertrain available today — technology wholly designed, developed, and manufactured in-house.” Luxury carmaker Aston Martin has also partnered with Lucid to buy electric motors and batteries, which provides credence to Lucid Motors’ claim that it offers a world-class product.

But for now, Lucid Motors is facing a severe demand crunch. While CEO Rawlinson had described low brand awareness, which he blamed for fewer sales, as an “entirely solvable problem,” it is proving to be a lot more complicated. While Lucid Motors could still be a multibagger if the management can execute well, with every passing day even the most ardent LCID stock bulls might be getting disenchanted with the company.