Lucid Group Stock: Analysts Fear This 1 Problem Is "More Consequential" Than Investors Think

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9 hours ago

The EV maker's sales are expected to explode in the coming year.
But analysts fear that Lucid Group will face financing troubles.
Significantly more funding will be needed in the period ahead.
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Lucid Group (NASDAQ: LCID) stock has tremendous long-term growth potential. Its market capitalization right now is under $7 billion -- less than 1% the size of Tesla. This year, sales are expected to grow by 78%. Next year, another 96% sales growth is expected.
There's only one problem. According to analysts from Bank of America, there is one emerging risk that is "more consequential" than the market realizes. It's possible that this risk could eventually sink the entire business.
After reporting a $397 million fourth-quarter loss this February, Lucid revealed that its longtime CEO, Peter Rawlinson, would be stepping down. It was a surprise to most investors. Rawlinson's comments made the move seem less abrupt than it appeared from an outside perspective, but his absence from the quarterly conference call drew uncertainty.
After leading the electric vehicle (EV) maker for 12 years, overseeing the launch of both its Air sedan and Gravity SUV, he simply stated that it was time to move on. "Now that we have successfully launched the Lucid Gravity, I have decided it is finally the right time for me to step aside from my roles at Lucid," Rawlinson explained.
Regardless of why Rawlinson stepped aside, many analysts weren't pleased. "We think the departure of Lucid's founder, CEO, and CTO, Peter Rawlinson is much more consequential than understood by the market," Bank of America analyst John Murphy explained after downgrading the stock to underperform. "We now expect product development to stall, consumer demand to be dampened, and anticipate additional funding opportunities could be put at risk."
Access to funding is the most critical risk for Lucid. The company now has less than $1.9 billion in cash on the books, yet it posted a $2.4 billion loss over the last 12 months. The company already raised $1.75 billion in late 2024 despite a weak share price, and its shares outstanding have jumped by roughly 30% over the past six months. All in all, Lucid has been racing to raise cash.
Yet its cash burn remains very high, share dilution is accelerating, and its share price remains in the dumps, limiting its ability to self-finance without massively diluting shareholders. If capital access is further restrained, as Bank of America believes could happen, the situation could quickly become dire.
But could Lucid really go bankrupt over the next 12 months?
Like most early stage EV companies, Lucid has been losing money for its entire operating history. It's very expensive to design, build, and scale a capital-intensive business like this. Only until critical scale is achieved, largely through the release of affordable mass market vehicles, do profit margins typically turn positive.
Fortunately, Lucid is on the cusp of releasing three new mass market vehicles. Management recently reaffirmed that the first of these should begin production in late 2026, though these timelines are often pushed out. Meanwhile, rapid sales growth from its recently introduced Gravity platform should provide investors with additional confidence.
But there's no doubt that time is limited. Some analysts have lost faith in the company, and positive profit margins are still likely years away, leaving the business dependent on outside funding to survive.
While it's a very rough estimate, Lucid currently needs around $500 million in cash per quarter to stay afloat. Its current cash pile, plus additional stock sales, should give it at least another year. However, significantly more funding will be needed to get its mass market vehicles into production. That'll likely require sizable share dilution. So while the company may survive, there's no guarantee that long-term investors will benefit.
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Bank of America is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Tesla. The Motley Fool has a disclosure policy.
Lucid Group Stock: Analysts Fear This 1 Problem Is "More Consequential" Than Investors Think was originally published by The Motley Fool