Saudi Arabian investment funds and other investors with close ties with them have put $1.5 billion into electric vehicle (EV) company Lucid. Lucid only sells luxury cars that cost $154,000 or more. There is virtually no market for these cars, and the EV competition is overwhelming. The Saudis made a mistake and will come to regret it.
Lucid still has a wildly high market cap of $12 billion. That is more than a fourth of the market value of Ford. While Ford sold over 158,000 vehicles in North America in October, Lucid is desperate to get 6,000 cars off the assembly line this year. In the third quarter, Ford had revenue of $39 billion.
Lucid management says that the company is in fine financial condition because it has orders for 34,000 of its Lucid Air vehicles. Those orders can disappear as quickly as they came. From the standpoint of future earnings, they mean nothing. At the end of the third quarter, Lucid had approximately $3.85 billion in cash, cash equivalents and investments. Management reckoned that would last Lucid until late 2023. The Saudi funds lengthen that runway.
Get Our Free Investment Newsletter
There are two reasons Lucid cannot be turned around, although there was never a business to turn around at all. First, the EV market has become crowded, and crowding will increase exponentially in the next three or four years. Every major car company in the world says it will put billions of dollars into the sector. And, of course, there is Tesla, the market leader. The ability of a small company to edge itself into the market is nearly impossible.
Second, even large companies like Ford cannot predict the costs to build EVs. Component costs have triggered an increase in what consumers will need to pay for its F-150 Lightning and Mustang Mach-E. Lucid faces the same potential hockey-stick jump in what it will need to spend to build its cars.
Lucid and its inventors, both new and old, are painted into an expense and demand corner, and there is no way out.
Sponsored: Tips for Investing
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
Source: Read Full Article