Lucid Bankruptcy Probability: Will Lucid Motors Survive?
Lucid Bankruptcy Probability is around 15% based on the company’s strong backing from its majority shareholder, the Saudi PIF.
Will Lucid survive? Let’s take an in-depth look into Lucid Motors to see if the company can survive long enough to scale production and become profitable before the money runs out.
The Incredible Lucid Bull Run and Crash
Lucid Motors made an incredible impact when the company went public via SPAC in 2021. LCID shares soared to as high as $57 during its peak but things have changed drastically since the epic bull run.
LCID is a stock under $5 because many investors are worried that Lucid Motors will run out of money and go out of business.
I mentioned in my article, Will Lucid Motors Stock Be Like Tesla, that the company lost a lot of money ever since going public and may be at risk of bankruptcy in the future.
Will Lucid Motors Survive Any Longer?
Management mentioned on the Q3 2023 earnings call that Lucid Motors currently has enough cash to survive until 2025, which gives them some breathing room to start production of the Lucid Gravity in late 2024.
However, Lucid lost $2.1 billion in 2023 so far and continues to burn through its cash reserves to fund production growth.
Lucid Annual Net Losses (per share)
- 2023: -$2.1 billion (-1.08)
- 2022: -$1.3 billion (-$0.48)
- 2021: -$4.7 billion (-$6.48)
Lucid has a free cash flow problem that compounds with every additional EV the company produces. In Q3 2023, Lucid lost $227,000 per electric vehicle delivered.
The company lowered its prices for its Lucid Air flagship electric car in August 2023 to help increase demand, which could boost sluggish sales.
Lucid Motors Has a Cashflow Problem
Free cash flow is arguably the most important metric for any business because it shows exactly how much money a company keeps over time.
If you don’t understand why free cash flow is so important to a company’s stock performance, read the following books on Amazon:
- Rich Dad’s Cashflow Quadrant by Robert Kiyosaki
- Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks by George C. Christy
Unfortunately, Lucid Motors ended 2022 with a negative FCF of $3.3 billion, which caused the company to burn through its cash reserves.
Lucid Motors Cash on Balance Sheet
- 2023: $5.4 billion (As of Q3 2023)
- 2022: $4.4 billion
- 2021: $6.4 billion
Lucid Motors issued a $3 billion at-the-market dilutive stock sale and raised $1.8 billion from the Saudi PIF to help strengthen the company’s balance sheet.
The truth is that Lucid Motors is burning through cash with no end in sight.
Lucid Motors will probably continue diluting shareholders to keep the lights on. I do believe Lucid Motors will survive the current financial environment, but the company needs to fix its free cash flow problem.
The recent Lucid Air price hike may help alleviate the cash burn, which is a healthy sign for LCID shareholders.
More Dilution May Be Coming Soon
With over 28,000 reservations and a goal of producing 500k EVs annually by 2025, I seriously wonder how Lucid Motors will fund all of this demand and growth.
Lucid lowered its production to around 8,000 to 8,500 EVs in 2023 so the 500k EV goal by 2025 seems almost impossible.
The company could raise prices but that would reduce the number of potential customers. The only logical answer is to offer more shares and raise more funds from institutional investors such as the Saudi PIF.
Tesla did the same thing during its initial growth phase, which helped the company survive several bankruptcy scares.
When Lucid Motors announced its first dilutive offering, LCID stock dipped below $15 for the first time since December 2020. Future offerings could push LCID stock below $3 if FCF doesn’t turn positive.
Is Lucid Motors Going Out of Business?
Will Lucid go out of business? It’s hard to say definitively whether Lucid Motors will go out of business, as it ultimately depends on various factors such as market demand for their products, their ability to produce and deliver vehicles on time, and competition from other companies.
The Saudi PIF has a majority stake in the company, and I doubt the Saudi government wants to lose its entire investment. The Saudi PIF may take Lucid Motors private at a discount under $5 rather than watch the company go out of business and enter Chapter 11 bankruptcy proceedings.
My Honest Opinion on LCID Stock
I’m a huge Lucid Motors bull who believes in the company’s mission to fight climate change and build the best EV on the planet. I’m also well aware that the company may not survive unless management controls costs and fixes the free cash flow problem.
My prediction is that many SPAC or newer companies will go bankrupt in 2023 but I hope Lucid Motors survives and avoids the corporate-startup dust bin.
I’m currently buying LCID stock under $5 because I believe higher sales volume could help the company turn a profit and avoid bankruptcy.
It’s a risky bet but could pay off for low-time preference investors.
