It's not hard to see how Lucid (LCID -6.29%) has massive long-term potential. The company delivered 3,099 vehicles last quarter, surpassing analysts' expectations by nearly 500 vehicles -- a 71% increase in deliveries over the year before. The quarter put Lucid over 10,000 vehicle deliveries on the year.
Tesla, for comparison, delivered nearly a half-million vehicles last quarter alone. Lucid's growth trajectory is headed strongly in the right direction, and bullish investors believe it could one day become the next Tesla. While these investors are focused on sales growth, there's another number every Lucid fan should be monitoring.
This number could make or break Lucid
It should come as no surprise to learn that countless EV start-ups have gone bankrupt over the decades. It takes billions of dollars to establish the manufacturing infrastructure necessary to produce these vehicles, not to mention making a car or truck that consumers actually want to buy. It also takes time to go from the idea stage to production, and then even more time to go from production to profitability.
Part of Tesla's success has stemmed from its ability to reach profitability quickly, at least on a gross margin basis. The company has posted a positive gross profit every quarter for more than a decade. As a small competitor, Lucid is still racking up losses. Even as its sales ramp higher, the company continues to lose money on every vehicle it sells, which weakens its financial position.
LCID Gross Profit Margin data by YCharts
The market is willing to subsidize money-losing businesses like Lucid as long as two things happen. First, the company must show that it can keep sales growth up. Second, it must eventually prove that it can sell its goods and services at a profit, even if it's a temporary feat. Can Lucid ever sell its vehicles at a profit? Eventually, the market will want to see proof. That's why I'm monitoring its gross profit margins as closely as its sales growth.
