EV Startups Have a New Bottleneck: Demand




Lucid shares are down 14 % premarket after the luxury electric-vehicle company said reservations had fallen since November

Lucid expects production of 10000 to 14000 vehicles this year.Photo: Jeenah Moon/Bloomberg New

By guest author Stephen Wilmot from the Wall Street Journal.

Last year American electric-vehicle startups were tripped up by production challenges. This year the problem could be demand.

Late on Wednesday, Lucid LCID -11.92%decrease; red down pointing triangle Group kicked off the reporting season for the various U.S. EV ventures that went public during the pandemic. It wasn’t pretty. The company made an operating loss of USD 2.6 billion on revenues of just USD 608 million last year, but that was to be expected as it ramps up output.

More worrying was the “over 28000” vehicle reservations Lucid reported as of Feb. 21. When it reported in November, the total was “over 34,000.” The company delivered just 1932 vehicles in the fourth quarter. Although the time frames for its reporting of reservations and deliveries don’t match, the implication is that potential customers are losing interest. The shares were down 14 % premarket on Thursday.

Reservations were always a flaky measure of demand for new EV brands. At Lucid, they are fully refundable and cost just UISD 300 for the entry-level USD 87400 Lucid Air Pure. With little else to go on, though, investors seized on reservations during the 2021 EV startup boom, encouraged by companies that needed billions of dollars of capital to realise their ambitions. Now that the number is sending the wrong signal, Lucid is retiring it: It will no longer report quarterly reservations, it said.

The other number likely to worry Lucid investors is production guidance of 10000 to 14000 vehicles this year. Last year it made 7180 cars, so the company’s 2023 outlook represents rapid growth, but not as rapid as some hoped: Brokerage Evercore ISI was expecting more than 20000.

The reason for the weak guidance seems to be a mixture of the shrinking order book, lingering supply-chain problems and perhaps some caution on the company’s part after its failure to meet last year’s early guidance. A few issues this quarter aside, Chief Executive Peter Rawlinson said on a call with analysts that “production is no longer a bottleneck.” While that is reassuring on one level, it shifts the focus to demand in a macroeconomic and competitive environment that may no longer be ideally suited to selling expensive cars. Tesla and Ford have cut their EV prices this year, and Lucid this month announced a time-limited USD 7500 discount on some models.

Demand may be a problem for Lucid’s peer Rivian, too, which reports its results next week. It is hard for EV startups to target anything other than the high-end luxury space, given the expense of both batteries and getting a car assembly operation going. But 2023 and 2024 may be less favorable for rolling out a new luxury-car brand than go-go 2021 and 2022 were.

At least both these companies have ample funding, unlike many smaller peers. Lucid finished the year with USD 4.4 billion in cash and other liquid investments following another capital raise in the fourth quarter, mainly from its majority shareholder, Saudi Arabia’s Public Investment Fund.

Lucid is one of the most shorted stocks in the U.S. and the latest results support the skeptics. So do conventional valuation measures: The shares trade for almost seven times expected sales, according to FactSet, and that is before consensus sales forecasts are likely to fall. Tesla fetches six times and Rivian three times.

But the backing of deep-pocketed PIF also makes Lucid a risky target for short sellers. An online rumor that the Saudi sovereign fund might buy minority shareholders out sent the shares up 43 % one Friday last month. Most investors would do well to steer well clear.