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.
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.
Let’s take an in-depth look into Lucid Motor’s income and cash flow statement to see if the company can survive long enough to scale production and become profitable before the money runs out.
Will Lucid Motors Survive The Current Financial Meltdown?
You know the global economy is facing recession when Elon Musk, the richest guy in the world, starts selling “Burnt Hair” perfume on Twitter to raise cash.
Lucid Motors produces arguably the best luxury EV on the planet but the company is losing a lot of money each quarter. Lucid has lost $1.1 billion so far in 2022 and continues to burn through its cash reserves to fund production growth.
|Quarter||Net Loss (per share)|
|Q4 2021||-$1 billion (-$90)|
|Q1 2022||-$81 million (-$0.05)|
|Q2 2022||-$555 million (-$0.33)|
Lucid has a free cash flow problem that compounds with every additional EV the company produces. The good news is that Lucid raised the prices for its Lucid Air flagship electric car in June to help eliminate the massive cash burn.
However, Lucid Motors issued an $8 billion at-the-market dilutive stock sale 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. The Q3 2022 earnings report on November 8th will provide a crystal clear picture of what’s going on.
I do believe Lucid Motors will survive the current financial environment but the company needs to fix its free cash flow problem.
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.
Unfortunately, Lucid Motors posted a negative FCF of $800 million in Q2 2022, which explains the dilutive stock offerings. As the company spends more money, you will notice cash on hand declines sharply.
|Quarter||Lucid Motors Cash on Balance Sheet|
|Q4 2022||$6.2 billion|
|Q1 2022||$5.3 billion|
|Q2 2022||$3.1 billion|
Lucid Motors spent half of its cash reserves in just 6 months and filed a stock offering to solve the cash burn. The problem is that Lucid Motors cannot fund production growth without selling more shares at the moment.
It’s possible that the recent Lucid Air price hike will help alleviate the cash burn, which is a healthy sign for LCID shareholders. Lucid’s preliminary Q3 2022 production & deliveries numbers revealed that the company tripled its production quarter over quarter to 2,282 electric vehicles.
That means the cost of revenue and capital expenditures will most like triple as well, which could increase Lucid Motor’s Q3 2022 quarterly loss to over $600 million.
According to SeekingAlpha, Lucid Motors Q3 2022 earnings will be around -$0.31 cents per share or -$520 million. Analysts believe that the June 2022 price hike will keep losses under control.
More Dilution May Be The Only Way to Avoid Bankruptcy
With over 37,000 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.
The company could continue rising prices but that would reduce the number of potential customers. The only logical answer is to offer more shares and dilute shareholders.
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 $10 to around $5 if FCF doesn’t turn positive.
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.