(1/x) $LCID I became interested in Lucid b/c of the tech & mgmt team. However, they have not executed as well as I hoped.
Thus, my investment thesis has changed.
But I'm not yet ready to sell my shares, b/c there's good & bad here.
Let's take a deep dive into the financials🧵
Thus, my investment thesis has changed.
But I'm not yet ready to sell my shares, b/c there's good & bad here.
Let's take a deep dive into the financials🧵
(2/x) Based on the most recent earnings (4Q22) reported February 22, 2023:
Revenue has grown 32% Q/Q and 877% Y/Y.
This is PHENOMENAL revenue growth. Though, Lucid is starting from a small base.
Revenue has grown 32% Q/Q and 877% Y/Y.
This is PHENOMENAL revenue growth. Though, Lucid is starting from a small base.
(3/x) Gross margins have improved significantly every quarter. Positive gross margin is the first step towards company profitability, and $LCID is headed in the right direction.
Quarterly gross margins:
3Q21: -1,331%
4Q21: -473
1Q22: -326
2Q22: -200
3Q22: -152
4Q22: -138
Quarterly gross margins:
3Q21: -1,331%
4Q21: -473
1Q22: -326
2Q22: -200
3Q22: -152
4Q22: -138
(4/x) Operating margin, which is equally as important for determining company profitability, is also improving every quarter. Again, a positive margin is the goal.
Quarterly operating margins:
3Q21: -214,245%
4Q21: -1,840
1Q22: -1,036
2Q22: -574
3Q22: -351
4Q22: -290
Quarterly operating margins:
3Q21: -214,245%
4Q21: -1,840
1Q22: -1,036
2Q22: -574
3Q22: -351
4Q22: -290
(5/x) Once the operating margin turns positive, it will mean Lucid is officially a profitable company from an operating perspective. That's when institutional & retail investors will have no choice but to pay serious attention to Lucid.
(6/x) And here's something amazing about Lucid's operations: Total operating expenses have remained stable over the past six quarters.
In 3Q21 operating expenses were $493.9M and have come DOWN (on a Q/Q basis) since then, even as the company is expanding (and with no layoffs).
In 3Q21 operating expenses were $493.9M and have come DOWN (on a Q/Q basis) since then, even as the company is expanding (and with no layoffs).
(7/x) If LCID can keep operating expenses in the $390M range, Lucid can become operationally profitable with around $1.7B in gross profits.
(8/x) Here's what that might look like. If LCID sold 90k cars in a yr at an avg price of $95k, that would=$8.55B in revenue. At a 20% gross margin, gross profit would=$1.71B. If operating expenses remained~$400M per Q (1.6B per yr), operating profit would = ~ $110M.
(9/x) I believe 90k+ in auto sales per year for Lucid is ONLY possible if Lucid releases the Gravity and other models with good demand. They can't simply rely on Lucid Air current preorders for the needed yearly sales. They need the Gravity (and eventually additional models).
(10/x) Sure, Lucid COULD achieve these numbers with *just* the Lucid Air IF more people learn that the sedan exists and the overall EV market grows.
But, as I just mentioned, I don't think it's wise for Lucid to *just* rely on the Air. Hence the need for more models, to be safe
But, as I just mentioned, I don't think it's wise for Lucid to *just* rely on the Air. Hence the need for more models, to be safe
(11/x) Veteran automakers sell millions of cars per yr. Tesla sells over a million.
90k is totally feasible for Lucid. But, again, they must ramp production and introduce additional models.
90k is totally feasible for Lucid. But, again, they must ramp production and introduce additional models.
(12/x) Of course, the avg sales price will decrease if Lucid releases a more affordable model. But, the lower sales price (and potentially lower margin) will be offset by a higher number of sales for a more affordable model.
(13/x) Also, there must be significantly more publicity for the Pure to boost sedan sales, as it's the most affordable Air. YouTube videos/reviews, product placement, celebrity sponsorships...whatever it takes to get the word out about the Pure, the best EV in its class.
(14/x) The Sapphire is the x-factor. It is the world's fastest production vehicle and Lucid's highest margin vehicle. If the Sapphire has unexpectedly high sales, that would change everything. It would push Lucid towards profitability faster than anticipated.
(15/x) In terms of cash flow, there isn't much to discuss (lol). Like most startups, operating and FCF are negative (and will be for a while).
(16/x) However, once the AMP-1 manufacturing plant is complete, the service centers are mostly built out, and inventory is sold at a more rapid clip (sales increase), the cash burn rate will slow significantly.
(17/x) From a balance sheet perspective, the primary focus is liquidity. As of 4Q22, Lucid had approx $4.9B in liquidity on the balance sheet. They burned about $3.3B in 2022 (negative FCF), so 4.9B should be enough to last into 2024.
(18/x) At some point, Lucid will have to issue debt or complete a secondary offering to raise capital, just like $PSNY, $NKLA, $RIVN and every other startup. This means share dilution. But if you're investing in a startup, you need to accept that dilution is a requirement.
(19/x) If you don't like dilution, stop investing in startups.
In fact, get out of the stock market completely, b/c many veteran companies engage in dilution through stock based compensation and share issuances.
In fact, get out of the stock market completely, b/c many veteran companies engage in dilution through stock based compensation and share issuances.
(20/x) In summary, in order for me to stay invested in Lucid, I have to believe LCID can:
1) Increase sales/introduce new models
2) Reach positive gross margin
3) Keep operating expenses under control and reach positive operating margin/profit.
4) Maintain the liquidity required to stay in business (i.e., raise capital through secondary offerings or issue debt)
2) Reach positive gross margin
3) Keep operating expenses under control and reach positive operating margin/profit.
4) Maintain the liquidity required to stay in business (i.e., raise capital through secondary offerings or issue debt)
(21/x) If I don't believe Lucid can eventually achieve ALL FOUR of the above, I SHOULD NOT be investing in Lucid.
As-of now, I still believe they can.
But due to less-than-stellar execution by management, I'm being very cautious with LCID.
As-of now, I still believe they can.
But due to less-than-stellar execution by management, I'm being very cautious with LCID.
(22/x) And the second I believe they can't achieve all four objectives, I will sell my shares.
But I'm not there yet. It would be foolish of me to sell before the reveal of the Gravity, Sapphire or future models, without knowing how popular any of those models will be.
But I'm not there yet. It would be foolish of me to sell before the reveal of the Gravity, Sapphire or future models, without knowing how popular any of those models will be.
(23/x) It's also important to note Lucid began in 2007 as a company building EV batteries and powertrains for other vehicle manufacturers.
They didn't switch focus to designing/prototyping vehicles until 2016/2017 and they didn't start manufacturing vehicles until late 2021.
They didn't switch focus to designing/prototyping vehicles until 2016/2017 and they didn't start manufacturing vehicles until late 2021.
(24/x) Thus, for all intents and purposes, Lucid is a BRAND NEW auto startup.
And it should come as no surprise that being a 1yr old startup in a high capex industry comes with significant challenges.
This is not financial advice. Do your own due diligence.
And it should come as no surprise that being a 1yr old startup in a high capex industry comes with significant challenges.
This is not financial advice. Do your own due diligence.
IMPORTANT EDIT: As @Nemesis_Lucid reminded me, my analysis doesn't even include revenue LCID can/will generate from licensing its EV tech to other OEMs or revenue from the govt. contract it recently secured to build battery modules (and other potential similar contracts).
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