Lucid Must Overcome These 4 Challenges in 2025

Lucid Group (NASDAQ: LCID), a fledgling maker of luxury electric vehicles (EVs), has burned a lot of investors since its public debut in July 2021. It initially gained a lot of attention because it was led by Tesla's former chief engineer Peter Rawlinson. It was on track to deliver its first vehicles back in 2021 and it set some ambitious growth targets.

But like many other EV makers that went public by merging with special purpose acquisition companies (SPACs), Lucid management overpromised and the company underdelivered. That's why its stock has dropped more than 95% below its post-merger high of $55.52.

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Image source: Lucid.

Before it went public, Lucid management claimed the company would deliver 20,000 vehicles in 2022, 49,000 vehicles in 2023, and 90,000 vehicles in 2024. But in reality, it only delivered 4,369 vehicles in 2022, 6,001 vehicles in 2023, and 10,241 vehicles in 2024. It broadly missed its own expectations as it grappled with supply chain challenges, production delays, and intense competition. To make matters worse, Rawlinson unexpectedly stepped down as its CEO this February.

With a market cap of $7.3 billion, Lucid's stock still isn't a screaming bargain at 5 times this year's sales. Some investors might be tempted to buy it as a turnaround play, but it probably won't bounce back until it overcomes these four challenges.

1. Finding a new permanent CEO

Rawlinson's exit and transition to a "strategic technical advisor" role was jarring, since he had led Lucid for the past 12 years. Lucid's chief operating officer Marc Winterhoff succeeded Rawlinson as its interim CEO as it searches for a permanent successor.

The lack of a permanent CEO is worrisome, since Lucid just launched its newest vehicle, the Gravity SUV, and plans to ramp up its production this year. It also plans to launch a cheaper mid-size SUV (rumored to be called "Earth") in 2026.

Lucid's next CEO needs to carefully balance its investments and cost-cutting measures as it expands its production capacity to roll out its new vehicles. If its board chooses an industry veteran with experience scaling up new vehicle launches, its investors might breathe a sigh of relief. But if it picks an industry outsider or an executive of another struggling SPAC-backed EV maker, more investors could abandon its beaten-down stock.

2. Resetting investors' expectations

In 2022, Peter Rawlinson claimed that Lucid could produce more than 500,000 vehicles annually by 2025. At the time, Rawlinson expected its support from the Saudi Arabian government -- which owns more than 60% of Lucid's shares through its Public Investment Fund (PIF) -- to drive it toward that ambitious goal.

But at the end of 2024, Lucid predicted it would only produce roughly 20,000 vehicles in 2025. That would be nearly double its production rate in 2024, but it makes Rawlinson's previous estimates seem ridiculous. Therefore, Lucid's next CEO will need to reset those expectations and set a clearer -- and more realistic -- roadmap for its future growth.

3. Reducing its dependence on Saudi Arabia

Analysts expect Lucid to continue burning billions of dollars annually, but the bulls believe its Saudi Arabian backers will keep it afloat. In addition to being its biggest investor, the Saudi Arabian government placed a decade-long order for 100,000 Air sedans in 2022. Lucid still had $6.14 billion in total liquidity at the end of 2024, which it insists will provide it with a "sufficient financial runway" into the second half of 2026 as it delivers more Gravity SUVs and launches its next mid-size SUV.

But over the long term, Lucid should reduce its dependence on the Saudi Arabian government. If Lucid botches its Gravity and "Earth" launches and continues to hemorrhage more cash, the PIF could dump its shares and move on to other EV makers. Therefore, attracting fresh investments from other investors and scoring other big orders could allay some of those concerns.

4. Slowing down its dilution

Lucid has increased its number of outstanding shares by 87% since its SPAC merger with its high stock-based compensation expenses and secondary offerings. That ongoing dilution makes it hard to consider Lucid an undervalued stock.

Last year, Lucid spent $286 million (35% of its total revenue) on its stock-based compensation expenses. If it meaningfully reduces that figure, it will slow down its dilution and gradually narrow its net losses on a generally accepted accounting principles (GAAP) basis. That progress could convince more investors that Lucid's business model is sustainable and that it can expand.

Is Lucid's stock worth buying today?

Lucid isn't headed off a cliff yet, but it still has a lot to prove. It isn't cheap enough to be considered a value play, and its inconsistent production rates, steep losses, and ongoing dilution make it a tough stock to recommend. Investors should see if it can overcome these four challenges over the next year before buying it as a turnaround play.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.