Prediction: Lucid Group Could Lose a $200 Million Revenue Source That Is Nearly 100% Profit

Key Points

• Lucid Group risks losing its federal and state credits for producing nonpolluting vehicles, which it can sell to other automakers.

• Scaling up the business in 2025 and 2026 may get more difficult.

• 10 stocks we like better than Lucid Group ›

Lucid Group (NASDAQ: LCID) has a very exciting future. Analysts forecast sales to surge this year by more than 70%. Next year, they should spike even higher, with 97% growth expected.

But there's one hidden challenge that few investors may be paying attention to. It will affect nearly every electric vehicle (EV) stock, including Rivian and Tesla.

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Lucid Group may lose this $200 million profit source

It's hard to be an EV producer. Over the last decade, more than 30 EV start-ups have either faced bankruptcy or quietly disappeared.

It's no surprise why. Building a car company from scratch takes many years and often billions of dollars to bring to fruition. Keeping investors keen on backing financial losses at such a high magnitude for such a long time is extremely difficult, even if the occasional Tesla does succeed.

Lucid is a prime example of this challenge. After nearly 20 years of operation, the company remains unprofitable. This has forced it to continually raise more capital from new and existing investors.

Earlier this year, it began production of its Gravity SUV. Sales from this new model are expected to drive heavy double-digit sales increases in 2025 and 2026.

In late 2026 or early 2027, the company is expected to begin production of several other models, all of which are expected to be priced under $50,000. This will allow Lucid to tap tens of millions of new potential buyers.

If sales growth surges in the coming years from these new models, Lucid has the opportunity to finally achieve positive gross margins -- something competitors like Tesla and Rivian have already done. There's just one problem: Lucid may soon lose a crucial revenue source that is nearly 100% profit.

For years, EV manufacturers in the U.S. have accumulated a variety of federal and state regulatory credits for selling nonpolluting vehicles. EV makers can then sell these credits to other automakers that do not produce enough nonpolluting vehicles. Besides a bit of overhead, there's essentially no extra cost involved in receiving or selling these credits, making them hugely profitable.

Last quarter, Lucid generated $31.5 million in revenue by selling these credits. In the past, its chief financial officer has said that the company was sitting on more than $200 million in credits. These sales helped gross margins considerably given how profitable they are to sell.

Unfortunately for the company, much of this profit source may soon disappear. EV tax credits for buyers are already set to be eliminated by Sept. 30 of this year given the passage of President Donald Trump's "Big Beautiful Bill." Senate proposals also call for the elimination of federal automotive regulatory credits, the exact kind Lucid has relied on for years to generate extra profit.

Image source: Getty Images.

Can Lucid survive if regulatory credits disappear?

There are some important details to highlight before getting nervous about Lucid's future. First, the automotive regulatory credits that the company has already accrued almost certainly won't go away. They will still be sellable at nearly 100% profit margins.

Second, much of its regulatory credits likely comes from states like California and New York. These programs will be minimally affected by changes at the federal level.

Still, there's a real risk that the company will lose a large chunk of this crucial profit source by the end of the year. Lucid doesn't precisely break down its regulatory credits by state or federal sources, but the potential impact is clear: It posted a $228 million negative gross profit last quarter.

That includes $31.5 million in credit sales. Without those, Lucid would effectively have generated another $31.5 million in losses. That's not necessarily a make-or-break figure, but every dollar counts considering it posted a $2.4 billion net loss over the last 12 months.

Will the elimination of automotive regulatory tax credits sink the EV maker? Likely not. But does that potential add a new challenge at a time when Lucid is struggling to scale up its business aggressively? Absolutely. This is a little-known metric to monitor in future earnings releases.

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Ryan Vanzo 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.