As an investor, it can be a good idea to avoid market hype because these excitement-driven trends can deflate just as quickly as they inflate. Down 94% from an all-time high in early 2021, Lucid Motors(NASDAQ: LCID) is an excellent example of what it looks like when that happens.
But could Lucid's fortunes now change? Let's explore what the next five years could have in store for the company as it seeks to navigate weakening industry demand and spiraling losses.
Second-quarter earnings offered a glimmer of hope
When looking at Lucid's stock price, it's easy to write the automaker off as a falling knife instead of a value opportunity. And that might be true. However, second-quarter earnings suggest that the multi-year collapse may be slowly stabilizing. Revenue grew a respectable 33% year over year to $200.6 million while operating losses fell 6.4% to $787.4 million.
These are not great numbers but they do demonstrate a move in the right direction as Lucid cuts costs while maintaining top-line growth.
The company may be able to drive even more expansion through new model releases such as the Gravity -- an SUV expected to start at $80,000 when it launches later this year. This vehicle could finally give Lucid access to America's lucrative large-vehicle market -- an opportunity that CEO Peter Rawlinson believes could be worth six times more than its existing sedan business.
If these lofty projections pan out, the Gravity SUV could be key in helping Lucid scale its way out of its losses.
Lucid makes great cars
Perhaps the most compelling thing about Lucid is the quality of its products. Right off the bat, its car designs look stunning and well-differentiated, which helps with brand recognition. But more importantly, they outperform peers on important EV performance metrics.
According to independent tests, Lucid's flagship Air sedan leads the industry, with a battery range of 410 miles. The company also claims to have the most powerful four-door car in the world (Sapphire) and the most energy-efficient vehicle on the market (Pure). Management estimates that it would take years for Lucid's closest competitor to match its technological lead.
Lucid's industry partnerships are another green flag. Last year, the company inked a multi-year agreement with British sportscar maker Aston Martin to help design its electric powertrains and battery systems.
Image source: Getty Images.
While Lucid is focusing on maintaining its technological lead, the current market leader Tesla seems to be pivoting to other opportunities like artificial intelligence (AI) and robotics, which may be distracting it from its core business. Further, Tesla's relentless focus on cost-cutting is eroding its once-premium image, creating a gap in the market that Lucid can help fill.
What will the next five years bring?
Over the next five years, Lucid certainly has the potential to scale into a major player in the EV industry. The automaker's upscale image and technological prowess could help it fill an underserved niche while larger rivals potentially race to the bottom on prices and quality.
That said, Lucid's near-term prospects remain daunting. With just over $3.2 billion in cash and equivalents on its balance sheet, the company can only sustain a few more quarters of current operational losses ($787.4 million in the second quarter) before being forced to rely on outside capital. The good news is that an ongoing relationship with the government of Saudi Arabia gives it a very deep-pocketed backer.
However, with a 60% stake in Lucid, it's unclear how much more the Saudis are willing to put into the company before potentially taking it private. Further, capital raises involve issuing more stock, diluting the value of existing shares relative to future earnings and cash flow. Investors may want to wait a few more quarters before buying the stock.
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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 has a disclosure policy.
