(Bloomberg) — The disparity of fortunes between the two most prominent U.S. electric vehicle startups shows Wall Street is choosing a side — and it’s not Lucid Group Inc.
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After recently hitting an all-time low, the stock is down about 25% this year through Thursday’s close, compared with a 1% decline for pickup truck industry peer Rivian Automotive Inc. In the same period. Lucid’s bullish analyst ratings have dwindled to only about a quarter of all recommendations. For Rivian, more than half of reviews equate to a purchase.
The performances reflect deeper differences. Lucid, which is set to burn $338,000 on every car it builds this year, according to Bloomberg Intelligence estimates, said in August that it still expects to produce at least 10,000 cars in 2023. Analysts’ average estimates for the company’s sales for 2020 have fallen 2023 Almost 50% in the last 6 months.
By comparison, Rivian, which is estimated to lose about $110,000 per vehicle according to Bloomberg Intelligence, forecast production of 52,000 units for the full year on Monday, and the average forecast for its 2023 sales rose about 5%.
“Lucid is well below the pace needed to even get to 10,000 cars this year, which is why it continues to hemorrhage money,” Jerry Brackman, chief investment officer at First American Trust, said in an interview. “The stock will continue to be challenged until they can show they have made significant progress in the number of units sold.”
The automobile industry is a capital-intensive process. That’s why Lucid and Rivian’s wealthy backers — Lucid’s Saudi Arabian Public Investment Fund and Amazon.com Inc. — helped them. For Rivian – in getting the excellent reviews that they still enjoy compared to other startups. But this only goes so far at a time when markets are grappling with the prospect of higher interest rates for a longer period and tightening liquidity. Rivian shares fell 23% on Thursday after the company said it plans to issue $1.5 billion in convertible debt.
Lucid tapped the capital markets for cash earlier this year, receiving an infusion from the Saudi fund, a move that shareholders do not normally like. “It dilutes the value of the stock, so from a combined investor standpoint this is a tough place to be,” Brackman added.
The company is currently going through a quiet period ahead of its third-quarter earnings report, and has not commented on the story. The stock fell as much as 2.3% on Friday, while Rivian fell 3.4%, after a higher-than-expected US jobs report sparked a market-wide sell-off.
Lucid and Rivian, once seen as Tesla’s most credible rivals, entered public markets in mid- to late 2021, when market enthusiasm for new electric vehicle makers was high. Their valuations rose before the tide quickly turned in 2022 as traders moved away from riskier growth investments. Lucid is down 91% from its peak, while Rivian has lost 89%.
They have been plagued by severe supply chain shortages and rising battery raw material prices, but problems have persisted with Lucid this year. The company struggled to increase sales, selling about 1,400 units in the first and second quarters. For the third quarter, it is estimated that about 2,100 cars will be sold. On the other hand, Rivian’s sales have grown significantly every quarter so far this year.
Lucid’s risk of default on its debt is also rising. According to Bloomberg Intelligence credit analyst Joel Levington, the company’s risk of default is now 16%, nearly four times the average for global automakers. “Lucid’s near-term strength is its $5.2 billion cash balance, but its cash burn of about $7 billion through 2024 sours views,” Levington wrote in a note on Wednesday.
Meanwhile, the company is trying to find a foothold in a market that Tesla already dominates. The company makes a luxury electric sedan that competes with Tesla’s Model S, along with several new models introduced by more established global automakers such as Mercedes-Benz Group AG, BMW AG, and Volkswagen AG’s Porsche and Audi.
“The problem is how Lucid positions itself — going after a smaller volume luxury market, while Rivian targets a larger addressable market,” said Tom Narayan, an analyst at RBC Capital Markets. However, Narayan noted, “Rivian is not out of the woods either, although it is now in a better place compared to Lucid.”
Technical chart for today
There was a time when the market values of both Rivian and Lucid exceeded those of Detroit automakers Ford Motor Co. and General Motors Co. Now its value is less than half of those companies. As of the last close, Ford was at the top of the pack with a value of nearly $48 billion, followed by General Motors at about $42 billion. Rivian is valued at $17 billion, while Lucid’s value has fallen to about $11 billion.
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– With the help of Subrat Patnaik.
(Adds Friday’s stock movements in eighth paragraph.)
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