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Individuals check drive Dream Version P and Dream Version R electrical autos on the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.

Caitlin O’Hara | Reuters

Luxurious electrical automobile maker Lucid seems to have a requirement drawback.

The corporate mentioned throughout its fourth-quarter earnings report Wednesday that it had “over 28,000” reservations for its Air sedan as of Feb. 21. That was a shock, on condition that the corporate had claimed “over 34,000” reservations in November and delivered fewer than 2,000 autos within the fourth quarter.

Much more shocking: Lucid mentioned it plans to construct simply 10,000 to 14,000 autos in 2023, far fewer than the roughly 27,000 Wall Road analysts had anticipated — and than the roughly 34,000 autos per 12 months that Lucid’s manufacturing facility is about as much as construct.

Shares of the corporate have fallen about 15% for the reason that Wednesday report.

Lucid confronted a tough street getting the Air into manufacturing. The corporate spent a lot of the primary half of 2022 scrambling to safe key parts and untangling logistics snags. Now, with manufacturing working roughly easily, it appears to be dealing with a brand new drawback: Not sufficient of its reservations are changing to orders.

CEO Peter Rawlinson acknowledged as a lot through the earnings name when he reminded listeners that reservations aren’t binding.

“We have solved manufacturing. That isn’t the gating challenge right here now,” Rawlinson mentioned. “My focus is on gross sales. And this is the factor: We have what I imagine to be the perfect product on this planet. … Too few individuals are conscious of not simply the automobile, however even the corporate.”

Rawlinson went on to say he believes that to be an “fully solvable drawback” and plans to give attention to “amplifying buyer consciousness” in 2023.

Extra advertising and marketing may assist. However clearly, demand for Lucid’s autos is not materializing as rapidly as the corporate anticipated, which raises some powerful questions for traders.

First, how massive is Lucid’s potential market? Any estimate of how a lot Lucid might develop has to begin with an estimate of the “complete addressable market,” and it seems the corporate’s estimates on that entrance could have been too rosy, on condition that its manufacturing facility is about as much as produce many extra autos than it is constructing now.

Working an auto manufacturing facility effectively beneath capability is not precisely a path to profitability, as Chief Monetary Officer Sherry Home conceded throughout Lucid’s earnings name.

“As we produce autos at low volumes on manufacturing strains designed for larger volumes, we’ve got and we are going to proceed to expertise unfavorable gross revenue associated to labor and overhead prices,” Home mentioned.

That results in a second, associated query: How lengthy will Lucid must run its manufacturing facility at a loss? Or, put one other approach, how lengthy will it take Lucid to get to profitability — and the way a lot cash will it have to boost between from time to time?

Financial institution of America analyst John Murphy has lengthy been bullish on Lucid, however in a word to traders following Lucid’s earnings report, he reduce the financial institution’s score on the inventory to carry, from purchase. Murphy wrote that he now thinks Lucid will not break even earlier than 2027, and that the corporate might want to elevate extra capital ahead of he had beforehand anticipated.

The excellent news is that Lucid has a deep-pocketed investor. Saudi Arabia’s Public Funding Fund owns about 62% of Lucid, and has proven — most just lately in December, when it invested an extra $915 million — that it is nonetheless prepared to fund the corporate. So long as it has the Saudi fund’s backing, Lucid ought to have the ability to hold going.

However the street to profitability — and to an enormous payday for Lucid’s traders — is now trying longer.

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