Mohit Oberoi
Lucid Motors (NYSE: LCID) stock fell 7% yesterday and fell to a new post-merger low. It was the rare EV SPAC that was trading above the IPO price of $10 but amid the recent fall even it has joined the long list of EV SPACs trading below the IPO price.
Lucid Motors went public last year through a reverse merger with Churchill Capital IV. It was among the most hyped SPAC mergers then and the stock went as high as $65 amid optimism over Lucid Motors’ prospects.
Only Digital World Acquisition, which has announced a merger with former President Donald Trump’s TMTG (Trump Media & Technology Group) matches the hype that Lucid Motors generated before the merger. DWAC stock is still above the IPO price and it has secured stockholder approval for a one-year extension. We have a guide on how to buy DWAC stock.
Coming back to Lucid Motors, multiple factors are adding to the crash. Firstly, EV stocks have tumbled and even Tesla stock has shed half of its market cap. Tesla, Amazon, and Meta Platforms have lost their status as $1 trillion dollar companies amid the tech sell-off.
Also, multiple company-specific factors are adding to the gloom for LCID stock. It has only been a year since Lucid Motors started to sell its cars. It already has done three recalls and several buyers have complained of malfunctions in online forums.
Some buyers allege that Lucid Air cars move forward even when in the reverse gears. Others have complained that it loses all power in the middle of the road.
Lucid Motors Stock Falls amid Demand Concerns
There are also concerns over the demand for Lucid Motors’ cars. During the Q3 2022 earnings call, it said that it has 34,000 orders for Lucid Air which was 3,000 less than what it had in the previous quarter. The company said that net orders dropped due to customer deliveries and cancelations.
Here it is worth noting that apart from these customer orders, Saudi Arabia has also placed an order for upto 100,000 vehicles from Lucid Motors. Saudi Arabia’s PIF (public investment fund) is the largest stockholder of Lucid Motors.
While Lucid Motors tried to downplay the fall in orders, markets were visibly perturbed. Incidentally, Rivian, which also went public last year, reported an increase in its order volumes while releasing its Q3 earnings. While LCID stock has fallen to new lows, Rivian is comfortably above its 2022 lows.
Tesla Stock Falls on Demand Concerns
More recently, the Insider reported based on internal emails that Lucid Motors is offering an $18,000 discount to employees who buy a Lucid car this year. The discount could be a sign that the company is facing demand troubles.
Incidentally, even Tesla is also offering a $3,750 credit to US buyers who take delivery of Model 3 or Model Y in December. Tesla stock slumped yesterday amid reports that the company is looking to cut production in China. Meanwhile, amid the slump in Tesla stock, some of the erstwhile bears also find the stock attractive and recommend buying the dip in Tesla stock.
Lucid Motors is Raising Cash by Selling Shares
Lucid Motors also announced a $1.5 billion stock sale program. Stock issuance at such depressed price levels would only increase the dilution for existing stockholders. The company would need the cash to bridge its cash burn.
While LCID had $3.85 billion cash and cash equivalents on its balance sheet at the end of September, it said that the cash would only fund its operations until the end of 2023.
Markets are also concerned about Lucid Motors’ relationship with Saudi Arabia. The kingdom has formed a joint venture with Foxconn to produce electric cars in the country.
Responding to an analyst question over Foxconn’s joint venture with Saudi Arabia, Lucid Motors CEO Peter Rawlinson said, “So, I am very confident and I think we can very comfortably coexist and benefit, actually mutually benefit from each other’s existence and growth.”
All said, startup EV companies like Lucid Motors and Rivian now face a moment of truth and need to ramp up production. Markets are quite unforgiving of EV companies that are faltering in execution.
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This article was written for Business 2 Community by Mohit Oberoi.
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