Struggling EV startup Lucid Group got a $3 billion bailout, enough to keep it running until 2025 when it plans to have new, higher-volume models available.
About two-thirds of the new funding comes from Saudi Arabia’s Public Investment Fund, or PIF, which now has about $9 billion invested in the California-based automaker. The additional funds will be raised through a new public offering of 173.5 million shares of common stock.
The watering down of existing shares in Lucid — traded as LCID.O — did not sit will with other investors, however. As of noon EDT on Thursday, Lucid shares had tumbled nearly 14% since word of the new investment plan was announced.
From boom to bust
Once seen as a serious challenger to Tesla, as well as heritage automotive manufacturers, Lucid’s star has fallen hard during the last 18 months. Its shares hit a high of $55.06 on Nov. 29, 2021, but has been trading at less than $8 a share in recent weeks. It dropped below $7 on Thursday.
Lucid received plenty of kudos for its initial product offering, the Air sedan, but strong reviews haven’t translated into solid sales. Like other startups, such as Rivian, it has had serious problems ramping up production, for one thing. In March, that led it to announce hundreds of layoffs, about 18% of its total workforce.
It disappointed the market with weak first-quarter revenue of just $149.4 million, well short of the consensus forecast of $209.9 million, according to tracking firm Refinitiv.
A painful burn rate
“The revenue was actually the weakest that’s been since the second quarter of last year, so there’s a big miss on the top line,” Garrett Nelson, analyst at CFRA Research, said after the earnings announcement.
At the same time, Lucid is spending cash at a fast clip, both to address its production issues and to bring out new products. It has promised to have a second model line, the Gravity SUV, in showrooms by 2024.
Gravity, in this case, could give the automaker a significant boost as it will target the growing market for utility vehicles. Sedans, whether using batteries or internal combustion engines, continue to lose momentum in the U.S. market.
The new investment announced Wednesday “will ensure Lucid survives a couple of more years,” Louis Navellier, chief investment officer at money management firm Navellier, told Reuters. “But their burn rate needs to fall fast. There’s a glut of EVs for sale in the U.S. and competitors are cutting prices and offering discounts.”
Tesla, in particular, has made it tough for other EV manufacturers with a series of price cuts since the beginning of the year. That has triggered others, including Ford, to respond with their own discounts.
Saudis remain committed
If there’s a positive side to the new round of investments, said several analysts, it’s the fact that the Saudis remain fully committed to Lucid. PIF put money into both Lucid and Tesla in 2018 but has since pulled its cash out of the more successful EV manufacturer.
With the latest investment, the sovereign fund is acquiring 265.7 million shares worth about $1.8 billion. PIF will now own 60% of Lucid.
The Saudis have also committed to purchasing 100,000 Lucid vehicles through the end of this decade. Some of those are expected to be a new line of more affordable sedans and SUVs Lucid has said it will bring to market after the launch of Gravity. In turn, the automaker has announced it will set up a second assembly line in the Mideast nation.
Lucid had indicated its cash and cash equivalents had dropped to $900 million by the end of the first quarter of 2023, down by nearly half over the prior quarter. But following the latest announcement, CFO Sherry House said it would now have $4.1 billion liquidity — enough to fund it through at least the second quarter of 2024.
Some outside estimates warned that Lucid would be able to last, at most, until 2025 unless it began bringing in higher sales — or raised still more fresh capital.