At first glance you might think Lucid (NASDAQ: LCID) is faring pretty well. After all, the start-up electric vehicle (EV) maker recently raised $1 billion from Saudi Arabia's Public Investment Fund (PIF), exceeded expectations in second-quarter deliveries with a 70% year-over-year gain, and announced -- albeit with some debate -- that it has produced the most efficient and sustainable vehicle made with its 2025 Lucid Air Pure. Those developments helped drive its share price up 47% over the past three months.
However, if you do more than scratch the surface, you'll see that many problems remain. Here are three things that could really burn Lucid investors.
Cash burn and dilution
Lucid faces the same problem many start-up EVs face: cash burn. Startup EV makers are in a tough position without lines of profits from gasoline-powered-engine vehicles to support their unprofitable EV products. Until costs come down significantly, or consumer demand unexpectedly explodes for higher-priced EVs, Lucid will continue to burn cash extensively.
In fact, during the first quarter Lucid posted a negative free cash flow of $715 million, which is a hefty amount considering it generated only $173 million in revenue. While the company had $4.6 billion in cash and cash equivalents at the end of the first quarter, it isn't expected to post a profit before 2030 per analysts polled by S&P Global Market Intelligence.
What does that mean, exactly? It means that the company will certainly have to raise more capital, and likely sooner rather than later, which means shareholder dilution (less profits per share). Investors have already witnessed dilution, as you can see in the graph below, but it's going to get worse.
LCID Shares Outstanding data by YCharts
Problematic layoffs?
In late May Lucid announced a 6% reduction in its workforce. Investors could take this as a positive that the company is leaning out its operations and cutting costs, but as with anything these cost cuts could do more harm than good. Larger, older, and more stable companies can absorb these layoffs more easily than a young start-up EV maker.
Further, layoffs generally come with high upfront costs and a less predictable long-term payoff. Also consider that a smaller workforce could throw a kink into scaling its production or executing the launch of its highly important Gravity electric SUV.
The Saudi dilemma
On one hand, Saudi Arabia's PIF has greatly supported Lucid's business, and that's a good thing for investors. The Saudi government has invested billions in Lucid and owns a 60% stake in the company.
It goes even further as the Saudi government has partially inflated Lucid's results recently. Consider that during the first quarter Lucid reported revenue of $173 million, topping analysts' estimates of $154 million. However, roughly $51 million, or about 30% of total sales, came from the Saudi government. Excluding the Saudi government purchases Lucid's first-quarter revenue would have declined 19% year over year.
While the Saudi government has seemed willing to throw money at just about anything, will there come a time when it decides Lucid's future, without its heavy support, is too dim to keep throwing money at? If that day comes, investors will feel the pain that comes with losing such a significant supporter of the start-up EV maker.
What it all means
While Lucid's stock has seen a healthy jump in share price over the past three months, the truth is that its business isn't nearly as healthy as it appears. The company is shedding some of its workforce, leaning heavily on its Saudi support, and will certainly continue to dilute shareholders. The future is almost certainly filled with electric vehicles, but Lucid remains a very risky and highly speculative investment in that future.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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