There are no guarantees in the world of investments. If you bet on the wrong company at the wrong time, prepare to potentially lose large amounts of money. Lucid Group‘s(NASDAQ:LCID) Early sponsors learned this lesson well. Actions in the electric vehicle start-up They are down a dizzying 99% from the all-time high they reached at the beginning of 2021.
The biggest loser is probably the government of Saudi Arabia, which controls more than 60% of the company’s capital through its Public Investment Fund (PIF). But many regular investors have also been hurt. Let’s dig deeper to see if the situation may change in the coming years.
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The war in Iran could be an under-recognized bullish factor for the electric vehicle industry. The conflict has practically suffocated the Strait of Hormuz, through which It passes 20% of the world’s oil shipping volumes. Many of the Middle East’s major energy producers have been caught in the crosshairs, sending oil futures up a whopping 53% so far this year.
Electric vehicles allow people to avoid oil prices by getting electricity from the grid, which is typically less volatile. There are signs that consumers are already changing their behavior. Data from New Automotive indicates that electric vehicle registrations increased by 51% year on year in 15 European Union countries. In the US, online marketplace Autotrader reports a 28% increase in inquiries about electric vehicles.
The situation also has major political ramifications as governments around the world realize the importance of reducing their dependence on imported oil. This trend could encourage them to support the industry.
Favorable macroeconomic conditions don’t matter much if a company can’t turn them into profits. Lucid’s fourth-quarter earnings were mixed. The good news is that the revenue numbers were phenomenal. Revenue increased 123% year over year to $522.7 million amid a huge increase in deliveries driven by the company’s new midsize SUV, the Gravity.
SUVs are generally a much more popular type of vehicle than luxury sedans in the U.S. The launch of the Gravity last year has quickly expanded Lucid’s addressable market. That said, with a starting MSRP of $79,900, the car is a bit pricey. In the coming years, management could drive growth by pivoting toward lower-priced offerings like Lucid Earth, which is expected to start at $50,000 when it becomes available next year.
But while Lucid’s revenue is doing well, the company’s results continue to struggle. Q4 operating losses skyrocketed 45% to $1.06 billion, which is an alarming amount of quarterly cash burn for a company with a market capitalization of only 2.6 billion dollars. Lucid will have a hard time staying in business without massive commitments from its backers.
Image source: Getty Images.
Lucid’s situation would appear hopeless without the continued support of the Saudi Arabian government, which sees the company as a useful tool in weaning itself from overreliance on fossil fuels. The war in Iran further exposes the vulnerabilities of the traditional energy industry. This uncertainty could reinforce the Saudi government’s commitment to funding Lucid, even if it doesn’t make strict financial sense at the moment.
Another lifeline could come from Uber Technologies. This week, it was reported that the ride-sharing giant plans to invest an additional $200 million in Lucid (bringing its total to $500 million) as part of the two companies’ robotaxi partnership. This agreement will involve the use of Lucid’s new Gravity SUVs as a basis for autonomous vehicles. It could also help Lucid increase production volume and improve margins by spreading fixed manufacturing costs over a larger number of vehicles.
But while I’m cautiously optimistic about Lucid, it’s always risky to catch a falling knife. Investors should not commit too much to the stock until there are signs that its extreme levels of cash burn They are under control.
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Will Ebiefung has positions at Lucid Group. The Motley Fool posts and recommends Uber Technologies. The Motley Fool has a disclosure policy.
Can you buy Lucid shares at $7.25? was originally published by The Motley Fool
