When looking for a stock with millionaire-maker potential, I typically gravitate toward companies with small valuations, rapid growth, and a pathway to profitability. With shares down by a whopping 97% from their all-time high of $58 (reached in early 2021), Lucid Group (NASDAQ: LCID) meets at least one of these criteria. But what about the others? Let's dig deeper into the pros and cons of this embattled electric automaker.
When Lucid hit the market in 2021, electric vehicles (EVs) were the latest technology hype -- arguably capturing the same level of excitement as artificial intelligence today. The industry leader, Tesla, had recently become profitable. And legacy automakers like Ford Motor Company and General Motors announced plans to shift capital expenditure to the new opportunity.
At the time, Lucid looked poised to fill a gap in the market. Like Tesla, it was a fresh, pure-play EV brand without much baggage. However, it differentiated itself by focusing on the ultra-luxury EV market with its first offering, the Lucid Air, which led the industry in terms of range, power, and interior finish.
Fast-forward to 2024, and the EV landscape looks radically different. For starters, growth has shifted away from pure-play EV makers to legacy automakers, which seem to be leveraging their more established brands, distribution, and service networks to drive consumer adoption. Most alarmingly, the luxury segment is getting crowded, with brands like Cadillac and Mercedez-Benz pouring into the market.
Lucid's third-quarter earnings provide a glimmer of hope. Vehicle deliveries jumped 91% year over year to 2,781, while the company's revenue increased 45% to $200 million. Management expects to boost growth even further with its latest offering, the new Lucid Gravity SUV, which is expected to start production this year.
SUVs and crossovers are surging in popularity relative to sedans in North America. And the Gravity could be key to Lucid's survival -- allowing it to expand into a larger and potentially lucrative market segment where similar products, such as the $58,900 (base) Cadillac Lyric, have seen massive success (with third-quarter sales up 139% to around 7,000 units).
Lucid is taking pre-orders for the Gravity at a whopping $94,900 for the "Grand Touring" trim. The more affordable "Touring" trim will start at $79,900 when it becomes available in late 2025.
Lucid will have to justify its huge pricing with performance and features. However, the good news is that the Gravity Grand Touring will have a range of 440 miles and 828 horsepower -- significantly more than the top-trim Cadillac Lyriq, which has a range of 314 miles and 500 horsepower.
Risk and reward often go hand in hand. And although Lucid has great potential, there are also some red flags investors should watch. Cash burn is probably the biggest of these long-term challenges.
In the third quarter, Lucid generated an operating loss of $771 million. Extrapolated over four quarters, that could translate to an annualized cash burn of over $3 billion -- an eyewatering outflow considering the company only reports $1.9 billion in cash and equivalents on its balance sheet. Investors should expect more equity dilution as Lucid issues and sells more shares to raise the money needed to maintain its operations.
While Lucid's small size and huge growth opportunity give it millionaire-maker potential over the long term, the company seems way too risky to bet on right now, considering its cash burn and the threat of dilution.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.