Lucid is struggling with demand for its cars, but its CEO is pushing investors to think long-term.

Luxury EV startup Lucid Motors isn’t selling nearly enough cars, and its CEO, Peter Rawlinson, knows it. 

“We’ve got the very best technology,” Rawlinson told investors and Wall Street analysts during the startup’s fourth-quarter earnings call earlier this week. “What we haven’t got is scale and an economy of scale.”

The California-based manufacturer, which launched its debut vehicle in 2021, produced 8,428 Air sedans last year. Of those, it was able to sell just 6,001 to customers. Lucid said on Wednesday that it aims to make 9,000 cars in 2024, barely an improvement year-over-year. 

For a company that once projected it would crank out 49,000 vehicles in 2023 and 90,000 in 2024, that guidance lands like a gut punch. The flat outlook has investors rattled; Lucid’s share price slid nearly 17% in the day following its earnings release. 

What’s become increasingly clear is that not nearly as many people are lining up to buy Lucid’s fancy four-door as the company expected, no matter how technologically impressive it is. (And it’s very impressive.) That’s a big problem for a startup that’s burning through hundreds of millions of dollars each quarter and badly needs more money coming in to stay afloat. 

Lucid, for its part, says it has enough cash on hand, $4.78 billion, to last it into 2025. Plus, it’s majority-owned by the sovereign fund of the enormously wealthy Saudi government, which could offer a liferaft if things get too choppy.

More importantly, Rawlinson has a three-part plan to fix that “economy of scale” problem, which he detailed on Wednesday. 

Lucid’s Path To Scale

Part one, Rawlinson said, involves cutting the price of the Air, thus making it more appealing to more people. (He says that was always in the cards. But if Lucid could keep prices high and still sell enough vehicles, it would do just that.) Last week, Lucid slashed the price of the entry-level Air Pure RWD by $7,500. It now starts at $69,900, a price that Rawlinson said expands Lucid’s total addressable market (TAM) threefold—“because now we go into E-Class Mercedes territory rather than S-Class.”

For Lucid and the other somewhat mature US EV startup, Rivian, the name of the game is scale. They’ve erected factories and started selling vehicles to paying customers at an enormous financial cost. Now they face the even more treacherous task of moving enough metal to do so profitably, a journey some journalists have called crossing the EV valley of death

The more cars an EV company can build and sell, the easier it becomes to drive down costs and stop losing money on every sale. This is the same problem established automakers are facing with their electric efforts. But Ford and General Motors can rely on income from highly profitable gas vehicles as they sink billions into beefing up their battery-powered portfolios. 

Lucid and its ilk don’t have that luxury. And ramping up sales of the Air, a high-end sedan that competes with the likes of the BMW and Mercedes, has proven difficult. The company has a vision for getting to the promised land, though. Most of that plan rests on the success of future models coming over the next few years. 

“It’s all about scale,” Rawlinson said.

Step two is the Gravity, a large, three-row SUV slated to start production by the end of this year.

SUVs are hot right now—much hotter than sedans are—so the Gravity has the potential to drive sales more than the Air ever could. Rawlinson said the SUV will allow Lucid to tap into six times the TAM as it has today. 

It isn’t exactly an apples-to-apples comparison, but consider the fiercer growth of Rivian, which started making a rugged pickup truck and SUV around the same time as Lucid launched the Air. Rivian cranked out some 57,000 vehicles last year. (Just like Lucid, it couldn’t sell them all, though, amid a wider slowdown in EV demand growth.)

Step three may be the most crucial. It involves Lucid’s upcoming midsize platform, which will underpin a smaller and more affordable vehicle than the Air or Gravity. That mystery model is set to go into production in late 2026, Rawlinson revealed on Wednesday, and represents 20 times Lucid’s current addressable market. 

That makes sense; a lower price tag translates to a wider potential customer base. More people buy Toyotas than Lexuses. 

“Today, we’re competing with Mercedes and Porsche,” Rawlinson said. “With midsize, we compete directly with Tesla Model Y and Model 3. That’s the best-selling car in the world.”

Big Questions Ahead

To its credit, Lucid has created some remarkable technology. The Air is the most efficient EV you can buy (tied with the Hyundai Ioniq 6) and offers by far the best range of any electric on sale in the U.S. Rawlinson, by the way, stressed that that efficiency will be huge for driving down costs over time, since Lucid can use fewer expensive battery cells than rivals do.

Still, big questions loom over Lucid’s next couple of years. Mainly, there’s fiercer competition in the EV space than ever. Tesla caught the auto industry flat-footed and built a hugely successful business out of it. There’s no guarantee other newcomers will manage to do the same now that established giants from Porsche and BMW to Hyundai and Toyota are on board with EVs. And there's the question of uneven EV demand right now, though that feels unlikely to be a long-term problem given the trajectory of the car industry and global regulations. 

Lucid also needs to build brand awareness, something Rawlinson has acknowledged is a weak spot in the past. It’s working on that, the CEO said on Wednesday, through initiatives like test drives at Saks Fifth Avenue locations. 

That’s not to mention the fundamentally excruciating task of actually building new vehicles on a large scale. Famously, Tesla nearly went bankrupt while ramping up production of the Model 3 sedan. Elon Musk’s automaker feels like an unstoppable force now, but it was a long road to get there. Tesla only achieved its first full year of profits in 2020, nearly two decades after its founding, and consistent profits didn't come until its factory in China went online.

Scale will do that for you.  

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2024-02-23T19:38:32Z dg43tfdfdgfd