Lucid Stock Investors Are Applying the Wrong Metrics to Gauge Potential
In the wake of Lucid’s (NASDAQ:LCID) fourth-quarter results, reported on Feb. 28, Wall Street and the media seem to be very focused on the reduction in the automaker’s production guidance. Conversely, I’m much more interested in another metric that’s tremendously more important for the long-term outlook of LCID stock: demand.
And Lucid’s reservation data indicates that the demand for its first electric vehicle, the Lucid Air, is not extremely strong. Additionally, I believe that the automaker is facing significant political risk that is not reflected in its shares.
Underwhelming Reservation Data
During its fourth-quarter earnings conference call, held on March 1, Lucid announced that it had booked over 25,000 reservations for the Lucid Air, “representing a 47% increase from (its) 17,000 reservations in mid-November.”
Compared with other EV makers, Lucid’s “over 25,000” total is not very impressive. As evidence of that, only “several weeks” after going on sale, there were “more than 110,000 reservations” for General Motors’ (NYSE:GM) Chevy Silverado EV. And in 2021, despite facing major chip constraints, Ford (NYSE:F) sold over 27,000 of its Mustang Mach E EVs.
Meanwhile, Arrival (NASDAQ:ARVL), another startup, recently announced that it had obtained about 134,000 “nonbinding orders and (letters of intent) for its EVs, while Volkswagen (OTC:VLKAY) obtained “over 144,000 orders for the ID.3 the past year in Europe.”
Even Fisker (NYSE:FSR), another startup about which I’ve been quite bearish in the past, last month disclosed that it had received almost 32,000 orders.
So, to put some of those numbers in perspective, in just “several weeks,” GM received more than four times more orders for its Silverado EV than Lucid has ever obtained for the Lucid Air. And Arrival, another EV startup, has in hand over five times more reservations than Lucid.
In defense of Lucid, some may say that perhaps it only took as many orders as it expects to be able to fulfill in the next year or two. But the comments of its management strongly indicates that the latter hypothesis is incorrect.
That’s because the company noted on its earnings conference call that the upper-scale, Dream edition of the Air was “completely sold out,” but it did not indicate that the less expensive versions of the Air were sold out.
Substantial Political Risk
The oil-rich Kingdom of Saudi Arabia’s Public Investment Fund (PIF) has invested $2.9 billion in Lucid. Certainly, those funds helped the company launch its operations quickly and attract top-notch talent. But on the other hand, with the Democrats in complete control in Washington, the Saudis’ investment poses significant political risk for Lucid.
That’s because, in general, the Democrats dislike Saudi Arabian Crown Prince Mohammed bin Salman, based on widely held suspicions that he ordered the murder of journalist Jamal Khashoggi in 2018.
I think the animosity between the Saudis and Iran, which both the Obama and Biden administrations have stoked in a variety of actions, may also be a key cause of the party’s dislike for the Saudis.
In any event, Lucid’s Saudi connection may play a role in getting it in trouble with Washington. Indeed, the automaker has already become the target of an SEC investigation.
The Bottom Line on LCID Stock
Lucid had over $6 billion of cash as of the end of 2021, so it has the means to ramp up its production fairly quickly.
A much harder task for the automaker will be generating demand for its EVs among a great deal of competition in the upper-scale consumer EV space. And the company’s reservation data suggests that it’s not exactly excelling in that area.
Given these points, along with the automaker’s still-huge market capitalization of $42 billion, I continue to recommend that investors sell LCID shares.
On the date of publication, Larry Ramer held a long position in ARVL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
