Lucid Group, Inc. (LCID) is a technology and automotive company developing next-generation electric vehicle (EV) technologies. The company designs, engineers, and builds electric cars, EV powertrains, and battery systems. It sells its products at its own geographically distributed retail and service locations and through direct-to-consumer online and retail sales.
In August, LCID lowered its 2022 production volume outlook to a range of 6,000 to 7,000 vehicles. “Our revised production guidance reflects the extraordinary supply chain and logistics challenges. We've identified the primary bottlenecks, and we are taking appropriate measures – bringing our logistics operations in-house, adding key hires to the executive team, and restructuring our logistics and manufacturing organization,” said Peter Rawlinson, LCID’s CEO and CTO.
On June 9, LCID entered into a Credit Agreement, with Bank of America Corp. (BAC) as the transaction’s administrative agent and Swingline lender. The revolving credit facility will provide an initial committed amount of up to $1 billion and has a five-year term, maturing on June 9, 2027. While the credit facility will help the company scale its business, it will increase interest expenses.
The Federal Reserve raised its benchmark interest rate by 75 basis points last month to keep fighting the multi-decade high inflation. This year's fifth rate hike brings federal funds to a range of 3% to 3.25%.
However, despite the central bank’s aggressive rate hikes, the Consumer Price Index (CPI) accelerated 8.2% year-over-year in September, making the case stronger for the Fed to announce another significant rate hike in its November meeting.
Amid the macro headwinds, market volatility and recession odds are rising, dampening investor sentiment. So, investors are getting rid of speculative EV stocks like LCID with fundamental weakness and elevated valuation.
LCID has plummeted 36% over the past six months and 68.2% year-to-date to close the last trading session at $13.01. The stock is currently trading 77.5% below its 52-week high of $57.75, which it hit on November 17, 2021.
Here is what could shape LCID’s performance in the near term:
Bleak Financials
LCID’s total cost and expenses increased 163.6% year-over-year to $656.53 million in the fiscal 2022 second quarter ended June 30, 2022. Its loss from operations worsened by 124.6% from the prior-year period to $559.20 million. Its adjusted EBITDA loss came in at $414.08 million, widening 89.9% year-over-year.
In addition, the company’s net loss and loss per share attributable to common stockholders amounted to $220.43 million and $0.33, respectively. Also, non-GAAP free cash outflow came in at $823.45 million, up 137.4% year-over-year.
Unfavorable Analyst Estimates
The consensus loss per share estimate of $0.31 for the fiscal 2022 third quarter (ended September 2022) indicates a 47.6% widening from the same period in 2021. Likewise, the company’s loss per share for the current and next year is expected to come in at $1.22 and $1.06, respectively.
The company has failed to surpass the consensus EPS estimates in each of the trailing four quarters. In addition, analysts expect LCID’s EPS to decline 69.4% per annum over the next five years.
Frothy Valuation
In terms of forward EV/Sales, LCID’s 25.03x is significantly higher than the 1.05x industry average. Its 29.11x forward Price/Sales is also considerably higher than the 0.82x industry average. Likewise, the stock’s forward Price/Book of 7.48x is 211.3% higher than the 2.40x industry average.
Low Profitability
LCID’s trailing-12-month gross profit margin of negative 281.59% compares with the industry average of 36.42%. Its trailing-12-month ROTC and ROTA of negative 35.66% and 26.25% compare with the industry averages of 6.86% and 5.19%, respectively.
Moreover, the stock’s trailing-12-month asset turnover ratio of 0.04% is 96% lower than the industry average of 1.03%.
POWR Ratings Reflect Bleak Prospects
LCID has an overall F rating, translating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. LCID has an F grade for Quality and Value, in sync with its lower-than-industry profitability and higher-than-industry valuation metrics.
In addition, the stock has an F grade for Stability. The stock’s beta of 1.21 justifies the Stability grade.
LCID is ranked #56 out of 63 stocks in the D-rated Auto & Vehicle Manufacturers industry.
Beyond what I have stated above, we have also given LCID grades for Sentiment, Growth, and Momentum. Get all LCID ratings here.
Bottom Line
LCID delivered poor bottom-line performance in its last reported quarter and lowered its fiscal 2022 production guidance. Moreover, analysts expect the company to incur huge losses for at least the next two fiscal years. Although the company reported strong customer demand for Lucid Air, with reservations over 37,000, it is expected to encounter chip shortages and other supply chain issues, affecting its deliveries.
Given the uncertain macro conditions owing to surging inflation, the Fed’s tightening of monetary policy, and growing recession fears, the stock is expected to decline further. Since LCID appears expensive at the current price level, we think it is best avoided now.
How Does Lucid Group, Inc. (LCID) Stack Up Against Its Peers?
LCID has an overall POWR Rating of F. Therefore, one might want to consider investing in other Auto & Vehicle Manufacturers stocks with an A (Strong Buy) rating, such as Volkswagen AG (VWAGY), Daimler AG (DDAIF), and Jardine Cycle & Carriage Limited (JCYGY).
LCID shares fell $0.01 (-0.08%) in premarket trading Wednesday. Year-to-date, LCID has declined -65.81%, versus a -20.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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