Lucid Group, Inc. (NASDAQ: LCID), an EV maker headquartered in Newark, California, has gained more than 40% in the last 5 trading days with investors reacting positively to CEO Peter Rawlinson’s remarks that the company is well on track to gaining share in the EV market with its Gravity 7-seater SUV which is expected to begin production later this year. The CEO also claimed that Saudi Arabia’s Public Investment Fund, which is one of the largest sovereign investment funds in the world with approximately $925 billion in assets under management, is a perfect partner for the company as it looks to access capital markets to raise funds. Investor sentiment got a boost from these remarks since Lucid’s high cash burn and potential funding struggles have been a hot topic in the recent past.
Who Is Lucid Group?
Lucid Group, since its rebranding in 2016, has been focused on developing high-performance electric vehicles. Lucid Air, designed to compete with the Tesla Model S, is the company’s flagship vehicle and comes in different versions such as Air Pure, Air Touring, Air Grand Touring, and Air Sapphire. The company attracted the attention of investors when it received $1 billion in funding from the Saudi Public Investment Fund back in 2018. Following Tesla’s lead, Lucid also uses a direct-to-consumer approach with the company selling its vehicles primarily on direct distribution channels such as online platforms and company-owned stores. The company, during recent earnings calls, highlighted plans to expand to Europe and the Middle East, potentially expanding its target market. In addition, bringing the Gravity SUV to the market remains one of its priorities given Americans’ love for SUVs and trucks.
What The Analysts Are Saying
Lucid seems to be moving in the right direction, as evidenced by the better-than-expected sales figures reported for Q2. Lucid produced 2,110 vehicles in Q2 compared to 1,728 in Q1, which suggests production has been ramped up by the company to capture the growing demand for high-performance EVs. The company delivered 2,394 vehicles in Q2. Lucid, however, has been struggling to stop the cash bleeding. Even in the first quarter, the company reported an operating cash outflow of $516 million. When Saudi-backed Ayar Third Investment Company invested $1 billion in Lucid a few months ago, Morgan Stanley analyst Adam Jonas commented that the capital raise was slightly lower than expected but should still help the company aggressively invest in expanding its production capacity. Although there is optimism stemming from the influx of fresh capital, investors should still be wary of Lucid’s inability to sell vehicles for a price higher than the cost of production. Based on the ratings of 7 Wall Street analysts, the average Lucid price target is $3.30, which implies a downside potential of 15% from the current market price.
Neither Dilantha DeSilva nor Stocks.News have positions in this company.
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Dilantha is a former buy-side equity analyst who now contributes to Seeking Alpha, GuruFocus, TipRanks, and ValueWalk. He is the founder of Beat Billions, a premium investment research subscription service on Seeking Alpha’s Marketplace. He has appeared on CNBC and Bloomberg to discuss stock markets and the global economy.