The S&P 500 The index has fallen 18% since peaking on January 3, 2022. Lucid Group (LCID 10.29%) The stock, meanwhile, has lost a staggering 81% of its value, according to data provided by S&P Global Market Intelligence. Electric vehicle (EV) stocks were hit so brutally in 2022 that investors are now wondering if there is any chance of a recovery in 2023.
Lucid dealt investors a rude shock earlier in 2022 when it cut its full-year production outlook to just 12,000 to 14,000 Lucid Air vehicles, citing supply chain challenges. As of February 28, 2022, Lucid has received 25,000 reservations.
The worst is yet to come, though: In August, Lucid said it would only be able to produce 6,000 to 7,000 EVs in 2022 as challenges continue to mount. As the company made more than 37,000 reservations by the end of the second quarter, lower annual production volumes meant longer wait times for customers to receive delivery of their vehicles.
That, of course, didn’t go down well with EV enthusiasts, and Lucid’s third quarter confirmed the market’s worst fears: Customers are apparently canceling orders as Lucid reported nearly 34,000 reservations through November 7, 2022. In short, Lucid’s bookings are down nearly 10% in three months.
Soon, reports emerged that Lucid was offering huge discounts and incentives to stave off further cancellations, and the stock sank as investors began to grasp the company’s woes and industry-wide supply chain constraints. Key parts, batteries and labor costs remain high, interest costs are rising, and Lucid’s operating costs are rising as well as its production volumes are significantly below its production capacity.
With fears of a looming recession, it created a perfect storm of challenges for Lucid and triggered panic-selling in EV stocks.
Lucid generated a modest $350 million in revenue in the first nine months of 2022 versus almost nothing in 2021, but it posted a net loss of $1.83 billion during the period. At this pace, Lucid’s critics now fear the company may run out of cash, but that seems remote.
Lucid had $3.85 billion in cash, cash equivalents and investments as of Sept. 30, 2022, and later raised another $1.5 billion through a stock sale. In addition, Lucid has the backing of Saudi Arabia as an affiliate of the Kingdom of Saudi Arabia’s sovereign wealth fund is a major stakeholder in EV Company. In 2022, the Saudi Arabian government signed a deal with Lucid to purchase up to 100,000 EVs over the next 10 years.
To drive growth, Lucid is expanding its production capacity and is set to open reservations for its flagship SUV, the Gravity, in the coming weeks.
However, none of this can restore investor confidence in Lucid until it can grow its order book and aggressively ramp up production and distribution. Until the EV start-up gives a firm signal in 2023 that it’s back on the growth track, why would anyone want to bet on a slow-growing EV stock with a steep price-to-sales ratio of 32 if the stock is still rising in the middle, it’s just A guess-driven dead cat can bounce.
Neha Chamaria has no position in any of the mentioned stocks. Motley Fool has no position in any of the stocks mentioned. Motley Fool has a revealing policy.