Why Lucid Could Continue to Set Record Quarters but Disappoint Investors

If you bought $10,000 of Tesla stock the day it went public, you'd have roughly $2.9 million right now. That's in a different world compared to the same investment in the broader S&P 500 that would be worth only about $66,000. While Tesla is one of a kind, it's that opportunity and those potential returns that have investors intrigued by other start-up electric vehicle (EV) makers such as Lucid Motors (NASDAQ: LCID) -- and if the latter keeps setting records for deliveries each quarter, should investors jump on board?

More records on deck?

If you've been following Lucid over the past year and a half, you're probably aware that the company's delivery announcements have been almost entirely positive. Lucid delivered more than 4,000 vehicles during the third quarter, marking its seventh consecutive quarterly record. The result was a sizable 23% increase over the second quarter, and a 46% jump compared to the prior year.

Lucid has openly acknowledged that the Gravity production acceleration has gone a bit slower than desired, thanks to supply chain issues, including a shortage of Chinese magnets that held some of the automotive industry hostage during the spring. After navigating its way through some choppy waters that include those supply chain issues, as well as tariffs and the expiration of the $7,500 federal electric vehicle tax credit, there's good news: Significant progress has been made with Gravity production, and the next step for the vehicle should enable the company to continue setting quarterly delivery records.

It's also worth noting that the Gravity is expected to have six times the addressable market as Lucid's Air sedan, leaving immense potential in the near term as production ramps up.

Enter the Touring

It's common for automakers to launch premium versions or trims of vehicles first, to get more profitable production on the roads, and that's the playbook Lucid took with the Gravity launch. Currently, the Gravity Grand Touring sells with a starting price of $96,550, including shipping. Originally, Lucid promised a sub-$80,000 sticker price, which is finally being realized in the Touring. In addition to the Touring and Grand Touring, Lucid has developed a top-end Gravity Dream Edition priced at $141,550 with shipping.

Lucid is currently launching the base version of the Gravity crossover with the Touring trim that delivers on the promised price tag and boasts 560 horsepower that helps the vehicle reach 60 miles per hour in 4 seconds. "The Lucid Gravity Touring unlocks a new audience for the Lucid brand," said interim CEO Marc Winterhoff, according to Automotive News. "There's not another SUV in its segment that can deliver the combination of range, interior space, and driving performance."

Image source: Lucid Motors.

With the Gravity's base trim finally in production, it should position the EV maker to continue driving its deliveries higher. With all of that said, why then is Lucid's stock down roughly 52% over the past three months?

What's the problem?

The problem for Lucid investors isn't the company's surging deliveries or even the top-line it supports; rather, it's a cash squeeze and missed estimates sending the stock lower recently. Lucid lowered its annual production estimate over the summer to a range of 18,000 to 20,000 before settling on the low end of that range, missed top and bottom-line Wall Street estimates during the third quarter, and is still burning through cash.

Lucid increased its delayed draw term loan credit facility from $750 million to $2 billion, which gives Lucid more capital for running business operations. Lucid also raised roughly $975 million in a private offering of convertible senior notes due in 2031, and most of the proceeds will go to repurchase existing senior notes due in 2026. These moves improved Lucid's financial flexibility in the near term and largely avoided shareholder dilution; however, this is likely not the end of Lucid's long-term capital needs.

Lucid promotes its consistent and continuous record of quarterly deliveries, but it's essential to recognize that Lucid faces numerous challenges ahead to achieve scale in production and deliveries, while also reducing costs to drive profitability. For most investors, Lucid is currently too risky to invest in, even with likely more record quarters ahead.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.