Lucid Motors: The Rise and Struggles of the EV Startup

Introduction

In 2021, the electric vehicle startup Lucid Motors went public by merging with a SPAC. It’s hard to overstate how hyped up the company was at the time. Bank of America called it the next Tesla, and shortly after it went public, its market capitalization reached $90 billion, surpassing the market value of Ford.

Its single largest investor is a Saudi Arabian sovereign wealth fund, which at this point had a paper gain of almost $50 billion on its investment. Lucid Motors promised to make the most luxurious electric vehicle the world had ever seen, with technical specifications far superior to the Tesla Model S. Yet, 2 and a half years later, the company has failed to live up to the hype.

In 2023, they only sold 6,000 cars, a small fraction of the 49,000 deliveries that they initially projected. Despite their cars selling for almost six figures, they still managed to lose more than $200,000 on every car they sell. The company incurs operating losses at a rate of roughly $8 million per day.

The story of an EV SPAC failing to live up to the hype is certainly not unique to Lucid Motors. Dozens of EV companies went public in 2020 and 2021. Almost all of them have either already declared bankruptcy or are on the brink of bankruptcy. By almost every metric, Lucid has failed as a company. There is no obvious path to profitability anywhere in the foreseeable future.

Yet, no matter how much money they lose, Saudi Arabia is always standing by to bail them out. Since 2018, the kingdom has injected $6.4 billion into this cash incinerator. In this video, we’ll look at why Lucid Motors is losing so much money and why the Saudi government seems determined to not let them fail.

A brief history of Lucid Motors

Lucid Motors was founded all the way back in 2007 and was originally called Atieva. Their goal was not to build electric vehicles; instead, they developed electric drivetrains which they wanted to sell to EV manufacturers. They demonstrated the power of their drivetrain by retrofitting it onto a van and showing it accelerate faster than two gasoline-powered sports cars.

In 2013, they hired a man named Peter Rawlinson as their Chief Technology Officer and later promoted him to CEO. Rawlinson previously served as a senior executive at Tesla, where he worked on the Model S. Upon becoming CEO, he decided to change the company’s strategy. With his design expertise, he figured that they could make entire electric cars. He also changed the company’s name from Atieva to Lucid Motors.

In 2016, they unveiled their prototype of an electric sports car, but building a factory to mass-produce this car would cost billions of dollars, billions that Lucid Motors didn’t have. Lucid spent the next two years trying to convince large investors to fund their ambitious plans, but for the amount of capital they required, this was a tough sale.

In 2018, they finally found an investor with deep enough pockets and a high enough risk tolerance. This investor was the sovereign wealth fund of Saudi Arabia. They had hundreds of billions of dollars and were keen to make investments in electric vehicles.

After receiving a $1 billion investment from Saudi Arabia, Lucid Motors started building a massive factory in Arizona to produce their first production car, the Lucid Air. The factory would have an initial capacity to make 10,000 cars per year, with a plan to eventually expand it to 300,000 cars per year.

Remember that CEO Peter Rawlinson worked on the Model S development at Tesla. His idea was to create a luxury electric sedan similar to the Model S but with superior specifications. Lucid Motors had indeed developed many innovative components, including their own powertrain and other components which gave their cars industry-leading performance.

Beginning of Deliveries

Lucid Motors began deliveries of the Air in late 2021. At first, they only sold the most expensive trim, the Lucid Air Dream, with a starting price of $160,000. In 2022, they started making deliveries of the slightly cheaper Air Grand Touring, which started at $139,000. This was 50% more expensive than a Tesla Model S at the time. The Lucid Air’s performance compared favorably to the Model S.

It can accelerate from 0 to 60 mph in 3 seconds and reach a top speed of 168 mph. Of course, there are no roads in the US where you can drive this fast legally; top speed is nevertheless an important metric for some automobile enthusiasts.

The single biggest differentiator for the Lucid Air is its incredibly long range of 516 miles, more than 100 miles greater than the Model S. This is made possible by the more efficient powertrain and other components that Lucid Motors had developed. The Lucid Air indeed has industry-leading performance specifications, but once people started taking delivery, they often noticed quality control issues such as the door failing to close, the key fob not working, squeaky steering wheels, etc. These types of quality issues are to be expected for a new car brand with limited experience in mass production.

In the first 3 months of 2022, Lucid Motors ramped up its production at its Arizona factory. In the fourth quarter, they produced 3,500 cars, but their delivery significantly lagged their production. By the end of 2022, they had accumulated 3,000 units of unsold inventory. Lucid knew that to achieve high sales volumes, they would need to produce less expensive cars. In 2023, they started selling their cheapest trim, the Lucid Air Pure, with a starting price of $77,000. This had lower performance than the Grand Touring but was still competitive with the Tesla Model S.

By this point, competition was heating up across the EV industry. Tesla reduced the price of the Model S down to $80,000, making it roughly the same price as a Lucid Air Pure. Despite releasing a lower-priced trim, Lucid Motors’s deliveries continued to disappoint. In 2023, they only produced 8,400 cars, far below their factory’s max capacity.

They still had trouble selling all the cars they made. By the end of 2023, their unsold inventory skyrocketed to over 5,000 units. In an attempt to clear their inventory, Lucid Motors cut the price of the Air Pure down to $71,000. This price cut indeed stimulated demand. In the first quarter of 2024, deliveries outpaced production for the first time in the company’s history, although this barely made a dent in their unsold inventory.

Over the past 2 and a half years, Lucid Motors has sold a total of 12,000 cars, a massive disappointment. So what went wrong? In 2023, Lucid sold 6,000 cars. While this is a paltry number in absolute terms, the market for luxury electric sedans is very small. In that same year, Tesla only sold 16,000 Model S’s in the US. The vast majority of Tesla sales are the more affordable models 3 and Y.

The EV industry is rapidly advancing. As new models with better performance are released, older EVs become obsolete and their resale values decline tremendously. Consumers are reluctant to spend upwards of $100,000 on a car that will quickly depreciate. Another culprit of Lucid’s poor sales is the lack of reliable charging infrastructure.

They partnered with Electrify America to offer 3 years of free charging. Electrify America’s charging stations are notoriously unreliable. Many Lucid Motors customers expected a better experience when they spent so much money on a car. Tesla owners, on the other hand, had access to the Tesla Supercharger network, which is far more reliable.

Lucid Motors’s Arizona factory is larger than necessary as they massively overestimated demand for their cars. Because their production is so low, the fixed costs are spread out across a very small number of cars. This has resulted in appallingly bad unit economics.

As they unveiled cheaper trims and lowered prices on existing trims, Lucid’s revenue per car has declined from $160,000 in the first quarter of 2022 to $90,000 in the first quarter of 2024. It costs them $236,000 to produce each car, so they incur a gross loss of almost $150,000 for each car they sell. Since the company went public, they’ve generated about $1.2 billion of revenue and $6.7 billion of operating losses.

Saudi Arabia

Given the company’s disastrous financial performance, it’s perhaps unsurprising that its share prices declined by more than 70%. What’s perhaps more surprising is that the company is not yet bankrupt after burning through so much capital. The main reason that Lucid Motors is still operational is the Saudi Arabian sovereign wealth fund, which has poured $6.54 billion into the company since 2018. Currently, they own over 60% of Lucid’s outstanding shares.

So why is Saudi Arabia continuing to pour money into what increasingly looks like a failed enterprise? Saudi Arabia has strategic goals, and they use their sovereign wealth fund as a tool to accomplish their objectives. Their economy is heavily dependent on oil exports, which represent 70 to 80% of total government revenue.

For decades, the kingdom has been trying to diversify its economy away from oil. Historically, almost 100% of the cars sold in Saudi Arabia have been imported. Building a domestic automobile industry would be a great way to diversify the economy, but this is easier said than done.

The first car to be built in Saudi Arabia didn’t happen until 2010, when engineers at King Saud University made a prototype SUV called the Gazal 1. While it was designed in Saudi Arabia, it relied heavily on parts imported from abroad and was assembled by a contract manufacturer. The car never went into production as the university failed to find willing investors. In 2017, the government contacted Toyota, asking them to build a manufacturing plant in the country.

After a two-year feasibility study, Toyota concluded that production in Saudi Arabia would be difficult due to high labor costs, a lack of local suppliers, and a small local market. They estimated production costs in Saudi Arabia would be at least double what it cost in other countries. Even with generous subsidies, they doubted this venture would be profitable. In 2019, they declined the Saudi government’s request.

Thousands of individual components are required to make a car. In countries with developed automobile industries, there are dozens, if not hundreds, of suppliers able to make all the necessary components. In Saudi Arabia, these suppliers do not exist. If you want to build an automobile factory, you would need to either set up production of all the components or import the components from abroad. Both options would be extremely expensive. It’s far more efficient to just import finished cars.

Saudi Arabia faces a chicken and egg problem. Automobile manufacturers won’t set up assembly plants in Saudi Arabia because there aren’t enough parts suppliers. Suppliers won’t set up shop in Saudi Arabia because there are no assembly plants to sell to. But any problem can be solved with enough money, and luckily that’s one thing the kingdom has no shortage of. It was difficult to convince an existing automaker to set up shop in Saudi Arabia, so they tried a different approach by buying a controlling stake in the EV startup Lucid.

Did they actually think that Lucid Motors would be a good investment? Maybe, but a simple financial return wasn’t necessarily their main objective. They told Lucid to build a factory in Saudi Arabia. Unlike Toyota, Lucid couldn’t say no. So they indeed built a factory, which began small-scale production in late 2023. Lucid’s Saudi factory is a semi-knockdown assembly plant. Most of the parts are fabricated at Lucid’s main factory in Arizona. The partially assembled vehicles are shipped to Saudi Arabia where they undergo final assembly.

Lucid Motors’s assembly facility is located in the King Abdullah Economic City, which is intended to become the country’s automobile production hub. While the Lucid factory itself will likely be a money loser, it’ll provide skills to the local workforce. Lucid is only the first step in Saudi Arabia’s automobile production roadmap.

They’ve also committed billions of dollars to create two new joint ventures with the contract manufacturer Foxconn and the South Korean automobile giant Hyundai. All three factories will be located in the same city. This will hopefully catalyze the establishment of local parts suppliers who can serve all three of these companies.

Conclusion

While this plan may work, it will only do so at an exorbitant cost. Saudi Arabia has already injected $6.4 billion into Lucid Motors and will likely need to continue bailing them out for the foreseeable future. The two new joint ventures they created will also require many billions of dollars of investment. Saudi Arabia may indeed create an automobile industry, but it’s unclear if it will ever be worth the cost.

What do you think about Lucid Motors? Should Saudi Arabia continue with their EV strategy, or should they just cut their losses? Let us know in the comments section below.