Is Lucid Motors a Millionaire Maker?

Lucid Motors (LCID 0.41%) highlighted the accolades its electric vehicles (EVs) have received when it reported its full-year 2023 financial results back in February. The list of kudos for the Lucid Air includes Car and Driver‘s 10 Best list for 2024, 2023 World Luxury Car of the Year, and 2022 MotorTrend Car of the Year. But is a good product enough to turn this upstart auto company into a millionaire-maker stock?

Lucid’s numbers are anemic

Lucid is building an automaker from the ground up, so it may not be fair to compare it to incumbents like Ford Motor Company or General Motors, which trace their histories back to the very start of the automobile industry. But you could easily compare it to companies like Tesla (TSLA -1.11%) or Rivian (RIVN 6.10%), which are both younger entrants into the auto space. And Lucid, Tesla, and Rivian are all attempting to compete in the burgeoning electric vehicle niche.

Image source: Getty Images.

There’s a small problem for Lucid when you start comparing it to Tesla and Rivian. In 2023, Tesla, the granddaddy of EV makers, produced 1.8 million vehicles. Rivian produced 57,000. Lucid produced just under 8,500. Right now, it’s an also-ran compared to other well-known electric vehicle makers, let alone the legacy auto manufacturers.

So the first big hurdle Lucid will need to overcome is its inability to compete at greater volumes. Management does have a plan to grow production, with an upgrade set to be completed in 2024 that it believes will give it enough capacity to manufacture as many as 90,000 EVs a year. It isn’t clear yet if there’s that much demand for its luxury vehicles, but if everything goes according to schedule, the company could make them if there are customers to buy them.

Lucid still has a lot to prove

So far, Lucid just hasn’t been a big player in the EV space. Other upstarts have sprinted ahead of it, gaining bigger footholds, and legacy automakers have used the past few years to ramp up their own EV businesses. In short, Lucid is sitting in a bad position.

Making matters more complex, Lucid uses a direct-to-consumer sales model. It doesn’t just have to expand its manufacturing capacity; it also has to build out a network capable of selling a lot more cars, too. That’s a lot of moving parts for a young company trying to compete in a mature industry.

To be fair, Lucid had cash and marketable securities totaling nearly $3.9 billion at the end of 2023. That’s a lot of money, so there’s no particular reason to think that Lucid is at any near-term risk of going bankrupt. In fact, it should have ample capital to keep investing in the growth of its business over the near term.

But the company was very clear to note in the “risks” section of its 2023 10-K that:

We have incurred net losses each year since our inception, including net loss of $2.8 billion for the year ended December 31, 2023. As of December 31, 2023, our accumulated deficit was $10.2 billion. We expect to continue to incur substantial losses and increasing expenses in the foreseeable future…

The prospect of lots more spending and red ink, particularly in light of the magnitude of its losses so far, makes that $3.9 billion cushion look a lot less robust. The company’s capital spending budget for 2024 alone is $1.5 billion.

So while Lucid may not have any near-term worries about money, it still needs to execute well, or it could run short of cash. Of course, it could always raise more capital, but that would result in shareholder dilution. That’s not going to help its investors become millionaires.

And then there’s the interesting example offered by Tesla. While it was working toward sustainable profitability, the stock rallied to its all-time high. However, once it achieved sustainable profitability, the stock started to decline. So even if Lucid does manage to expand production 10-fold and sell those EVs, that’s no guarantee that the stock will be a big winner from here.

TSLA data by YCharts.

Lucid is a high-risk investment

Lucid clearly makes a good product, or it wouldn’t have amassed so many auto industry accolades. But it has a long way to go before it can claim to have a sustainable EV business. If everything goes according to plan, which will require very good execution, it might prove the Wall Street naysayers wrong. (The stock is now down by 95% from its 2021 peak.)

If the company delivers, the stock could rocket higher. The only problem is the Tesla example, which suggests that even building itself into a profitable EV maker may not be enough to drive Lucid shares radically higher and make some of today’s shareholders into millionaires. This stock is most appropriate for extremely risk-tolerant investors.