With shares down by almost 50% year to date, Lucid's (LCID -3.03%) stock price plunge shows no signs of ending. The electric vehicle (EV) maker's top-line growth has stalled while losses are widening -- a terrible combination for business sustainability. But despite these challenges, Lucid makes great cars capable of going toe-to-toe with the best in the industry. The next five years will determine if that is enough to resuscitate the stock.
Pivoting to trucks and SUVs
Lucid's third-quarter revenue rose 45% year over year to $200 million, which looks good on the surface. But when you dig a little bit deeper, you'll notice that there isn't a clear growth trend. Sales are down slightly from the $200.5 million reported in the second quarter, and only up slightly from the $195 million in Q3 2022 -- a full two years ago.
LCID Revenue (Quarterly) data by YCharts.
The company's operating losses also continue to deepen, reaching $770.5 million in the third quarter versus $687.5 million in the same period two years earlier while revenue only increasing by 2.3% in the same timeframe.
Looking at this anemic performance, it's easy to assume that Lucid makes terrible cars that no one would want. But this isn't the case. Industry experts tend to be very impressed with its offerings. In 2022, the Lucid Air won Motortrend's Car of the Year. And in 2023, it won the World Car Award's Luxury Car of the Year for its industry-leading range and design. The trouble is, the company has failed to turn a quality product into a good business.
What will the next five years have in store?
The discrepancy between Lucid's product quality and operational performance suggests poor managerial leadership is failing good engineers. However, the company has several ways to fix its problems over the coming years. The biggest strategy could be expanding its vehicle lineup.
It's no secret that sedans are falling out of favor with consumers, who now gravitate toward larger vehicles, especially in the U.S. Lucid plans to tackle this opportunity with new product offerings like the Gravity SUV, which is expected to start at about $80,000 when it becomes available this year. According to Lucid's chief executive officer, Peter Rawlinson, the addressable market for the Gravity could be six times larger than the Lucid Air's, possibly revving up the company's top-line growth.
Image source: Getty Images.
The pivot to SUVs could be the key to Lucid's survival over the next five years. But success isn't guaranteed. The luxury SUV market is hugely competitive, with traditional brands like Cadillac making a name for themselves through wildly successful products like the Lyriq, which saw sales jump 133% year over year in Q3 to 7,000 units.
Investors should watch the Gravity's sales closely, because this might be Lucid's last chance to break into high-volume EV manufacturing. If the product is popular, management is ready to meet demand. According to Rawlinson, the company's Arizona plant will be capable of manufacturing 90,000 Lucid Gravity SUVs per year.
Is Lucid stock a buy?
The biggest headwind for long-term Lucid investors will be cash burn. We can extrapolate the company's third-quarter operational loss of $770.5 million to an annual loss of around $3 billion. This is a hefty burden for a company with a market cap of just $6.4 billion and cash and short-term investments worth only $3.5 billion on its balance sheet.
Even if Lucid's Gravity SUV saves the company, I expect significant equity dilution from new stock sales to raise money during the next five years. This move could crush current investors' claims on future potential earnings, so it might be too early to buy the stock.
