Hey guys, it's sasha lucille motors turned up last year and quickly became yet another company that was going to be the tesla killer, but things are not going well for lucid and in this video i'm going to cover some of the issues the company is currently facing, And why there are significant risks, in my opinion, to the lucid stock price. Just so you know i do not have any position in lucid and i do not plan on opening any position after making this video. So this view is coming from a somewhat neutral perspective. I do own a whole load of tesla stock, but i also did hold lucid shares last year until the share price exploded in november, when i sold all of them.

But let me go through some numbers and facts that we've been seeing over the last four months. That would be very concerning if i still was a lucid motors shareholder first, let's look at the most obvious issue and that is the production ramp. It seems that lucid have started production at some point in september last year and the first delivery started right at the end of october in the much publicized event, and there was a huge amount of media coverage and the lucid shares exploded. But here we are in february and by all accounts, production is running way way way behind schedule based on the information lucid have shared on social media and some other content on youtube, including the very recent meet kevin's review.

It looks like lucid, produced less than 200 cars in q4 last year. They previously said that they wanted to complete all 520 looted air dream editions in q4, so they are definitely running a little bit behind on that forecast, but whether it's 500 or 200 cars in q4, it doesn't really matter it's not really relevant at all. In terms of valuation, what is relevant is what this indicates in terms of future growth. I went and looked through the lucid owners forum and as of today, there are still multiple people right now who are lucid air dream buyers who are still waiting for their lucid air dream additions to arrive.

Given we are five days from the end of the month from the end of february, this means that lucid will be very lucky to complete those 520 dream editions in total by the end of february having started delivering them in october. So the first two months of q1 are looking like they might or might not hit 300 cars and remember that the target for this year for 2022, as of the last bit of data available, which was the q3 earnings score, was 20 000 cars produced now. Given that they will have to update the production line, to switch from the dream edition to the grand touring cars and then the other models uh and the lack of progress on the manufacturing it looks like q1 is going to produce less than 500 cars, so that 20 000 car target for this year is looking impossible. I just don't see it.

I am sure in the early school lucid will shout very loudly about the number of pre-orders they had because they did last time they had 17 000 pre-orders in november. So i'm presuming that number is probably more like 22 to 25 000 now, but, however cool it is to have a bunch of pre-orders making cars is hard, so if management abides by their fiduciary duty, i would fully expect that the 2022 total uh to be brought Down in terms of production targets, probably to less than half of that 20 000 goal, maybe even down to 5 000 cars or less because even 5 000 would mean a quarterly production rate of one and a half thousand cars. For the next three quarters, which would be roughly three times the rate at which they seem to be producing them in q1, but the worst bit is the knock-on effect, because this delay will cause other delays that will cause other delays. Lucid's business plan from july last year said that not only will lucid produce 36 000 looted air cars in 2023 that's next year, but they'll also make 12 000 gravity suvs, and that is a large volume that is 4 000 cars rolling off the production line.

Every month or 12, 000 a quarter and the factory for making the gravity suv is still in the very early stages of construction. Given the information that we have today, i just don't see losers, producing gravity suv next year. Full stop, let alone hit a volume of 12 000 units, and all of this is going to significantly dent the financials. I'm going to go through that in just a second.

But first let me talk about the recall, because not only is the production currently slow but lucid is hitting some challenges with their manufacturing. They recently identified a problem with how the front suspension was built and recalled the entire 200 odd cars that they have made up to the point. It seems when they discovered the fault. This is going to be a very frustrating issue because they have delivered cars far and wide right across the united states, so they now have to go and collect all those cars from every owner transport them to wherever the issue can be fixed and then go and Send them back now.

It would be odd for a brand new car manufacturer to not have these issues when they start volume production for the first time. But this recall points to a fundamental process. Failure which is worse than i think, even a regular recall, because lucid stated that they expect that perhaps one percent of these 203 cars may have had the suspension incorrectly installed. So, according to them that maybe is two or three cars, but for a company that apparently wanted to produce 20 000 cars this year and we are in february this points to the production line being way too manual, because either the recall should have affected all of The cars or it could have been a defect that would only have presented itself in some of the manufactured cars, but this is neither of those two things here.

Lucid is stipulating that the part may have been incorrectly installed, and that means that at least this part of the manufacturing process is very manual and given they are only completing around three or four cars per day. In that huge massive factory, it suggests that a lot of other processors are still very manual too, and that is another indicator that the production ramp may be a lot slower than expected. If you troll through the owners club forum and watch the reviews, it seems that this recoil is not the only technical issue that lucid is facing. People are complaining that the software is very slow and laggy, which is a serious problem on a brand new 169 000 car, because the likely reason for it being slow is the hardware if it's the software.

That's a whole other can of worms that i'm not going to open, but if it's the hardware, given that tesla have recently been upgrading the hardware in their cars to significantly higher powered amd machines, there is a risk that the fairy dust is going to start blowing Off this lucid brand, the software is also, at the moment, extremely limited. There is very poor integration, mobile devices, and you have to wait for things to load, sometimes quite a long weight. They don't even have adaptive cruise control. I have all of these things on my five-year-old jeep and i would have hoped that, given the amount of hype they've built up at least some of the basic technology would be coming to these cars sooner rather than later.

I'm not asking for them to be self-driving or anything else, but i would expect that maybe some basic features that you would get on any car today that you go and buy that isn't a 169 000 lucid, maybe would be present here as well. Anyway. If the issues are hardware issues that may mean that they have to go and upgrade that system, that would mean they have to go and redesign the car redesign, a bunch of other componentry redesign, the supply chain, redesign the production process restructure the factory and that's going To slow down that production ramp even further, so let's look at the financials, because this is where the problem for lucid may be, as at the end of q3, lucid had 4.8 billion dollars in cash on his balance sheet pretty much all of it came from that Ipo last year, the rest of the assets don't really help with cash flow, so we can pretty much ignore them. Things like factory or prepaid expenses are irrelevant, and then they have 269 million dollars of current liabilities.

So this is money the company is going to have to pay out in the next year and given that they are pretty much making no revenue, that is an important consideration so net. They have something like four and a half million of cash remaining. Now, unfortunately, the 10 q form that they filed for q3 last year doesn't show the cash flow for q3. It only shows a consolidated nine-month window for a total of three quarters in 2021, and that does seem a little bit odd, because the p l does show you the quarterly data, and you would really have expected to see it.

It means we can't see the real latest version of what the burn rate is in a cash flow, because it includes quarters before the company ramped up headcount before they ipo that before they started manufacturing cars, they do have this small free cash flow table in the Press release, though, probably for this reason and it's sort of helpful, it shows that the burn rate on a free cash basis is 385 million dollars in q3. Now, since that quarter, lucid has been ramping up its spending like no. Tomorrow there are expensive showrooms opening up. Seemingly every single day, i'm exaggerating here, but there is a lot of them right across the united states and now in other countries as well.

Lucid is hiring a whole massive load of people and they have started work on this additional factory building. You won't see that factory building in the p l when we look at future quarters, but the capex expenditure is still cash that is departing the business so on an annualized basis. That cash flow is already burning one and a half billion dollars per year and with all of this spent, i am guessing. That number is going to increase dramatically over the next few years, potentially to double that or more and given the pace at which their production ramp is going, it isn't looking likely that they will have any substantial revenue to offset these costs anytime soon, if they make Those 500 cars in q1 - that's roughly going to be 75 million dollars worth of revenue, so they're going to burn through that cash pile relatively quickly, and that is why, in december last year, lucid raised two billion dollars in convertible notes.

These become convertible in september 2026. Although they can be converted from december 2024 if some conditions are met, interestingly, i read through this sec filing, and one really interesting condition is that the share price has to be 30 above the conversion price, and the conversion price in this agreement is set at 54.78. Anyway, so they are raising money and i would be very surprised if they didn't do that, if i'm honest, but if we're taking a significant delay on the air ramp and the gravity, production goes back to 2024 or 2025 even they're going to have to raise a Lot more money - and this could become a problem through either dilution or taking on debt. Now lucid, is still majority owned by saudi arabian public investment fund.

So there is pretty much zero chance that this is going to have significant financial repercussions in the form of bankruptcy or they're not being able to raise money. Those things are probably not going to happen, but these are all not grains, great signs for the share price and the regular shareholder. The big problem for me is that lucid is trying to run before they've learned to walk. There is so much hype, so much media coverage.

This has gone completely bonkers in the last few months. It is clear that a lot of this hype is paid for. Lucid has already won awards at the back end of last year, and this year you know it was like being the car of the year, which is incredibly unwarranted, no matter how good the car is when you've only manufactured just a handful of these cars and all Of those cars are currently on transporters going back to fix their suspension. I do love a lot about these cars.

Don't get me wrong. I think the first stab at manufacturing for lucid seems really really good. It's pretty good, a pretty good effort for a brand new company, i'll kind of almost want one, but is all of this marketing and attention necessary. If you are absolutely in no position to fulfill your pre-orders for probably a couple of years, do you need to be burning money and setting up showrooms all over the place when you could have just sold cars in arizona and california to start with and make your Life, a million times easier, with fixing all of the initial issues not having your car spread out all over the place, all the problems with recalls and everything else do you need to start building a factory for the second model when you haven't yet figured out how To actually manufacture the first one, because i would presume that lessons from ramping the first production line would be incredibly valuable when you come to the second one, so you don't make the same mistake twice: do you need to post a photo of a happy customer taking Delivery of their lucid and forget to mention that the happy customer is actually a lucid employee.

I mean it is great that employees are buying the products that they helped develop. That is a really good thing in a way, but it does smell bad when you forget to mention it in the marketing piece and again, lucid themselves are confirming that they are still only working on the dream edition backlog because of this photo and they seem to Be very proud of delivering these cars one at a time and that culture is going to need to change very very quickly if they want to be taken seriously as a mass manufacturer and if they want anyone to believe their target numbers lucid, have their earnings school. On monday, the 28th of february after markets close - and i am guessing - we are going to have some updates on some of these concerns in that call. If we do not that's probably even worse, because it will look like the can - is just being kicked down the road and in the current market, where companies that post particularly good results that far surpass expectations, then go and lose 24 percent of their share price.

In the next few days, a bad earnings call can be pretty disastrous and it could really spook investors. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later, you.

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