What happened
Lucid Group (NASDAQ: LCID) shares plummeted Thursday morning after the company announced plans to raise fresh capital. As of 10:35 a.m. ET, the stock was down 15.4% and approaching its all-time low share price set in January 2023.
So what
Lucid said it expects to raise about $3 billion from a common stock offering and a private placement share sale. The immediate negative reaction from investors likely came because Lucid CFO Sherry House said in the first-quarter earnings release less than one month ago that the company's $4.1 billion in liquidity -- including $3.4 billion in cash, cash equivalents, and long-term investments -- would be sufficient to fund operations "at least into Q2 of 2024."
Now what
But investors shouldn't be surprised at the new capital raise. In August 2022 Lucid filed a registration statement with the Securities and Exchange Commission to give it the ability to raise up to $8 billion over the next several years. That included the potential to issue new shares of common stock.
Lucid expects to gain $1.2 billion through a new common stock issuance, and another $1.8 billion by selling shares in a private placement to an affiliate of its largest shareholder, the Saudi Arabian Public Investment Fund (PIF).
The Saudi fund controls over 60% of Lucid's outstanding common stock. The EV company also has announced plans to build a manufacturing facility in Saudi Arabia with the Saudi government agreeing to purchase up to 100,000 Lucid vehicles over the next 10 years.
While the new share issuance shouldn't be surprising -- and indeed means the company is preparing to fund operations beyond next year -- Lucid stock already had a high valuation with a market cap of over $12 billion. That is expensive for a company that had just $150 million in first-quarter revenue. That valuation helps explain the stock's reaction today.
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Howard Smith has positions in Lucid Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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