Nikola (NKLA 5.30%) and Lucid (LCID 0.53%) both disappointed investors in similar ways after their public debuts. Both electric vehicle (EV) makers went public by merging with special purpose acquisition companies (SPACs), attracted a stampede of bulls with their optimistic production forecasts, then drove them away by missing those estimates by a mile and racking up steep losses in a deteriorating macro environment.
Both companies also initially dazzled the bulls with their ambitious plans. Nikola tried to establish a first-mover’s advantage in the electric semi truck market with its battery-powered and hydrogen-powered vehicles. Lucid wanted to create a new luxury brand for EVs that targeted higher-end customers than Tesla. But today both EV stocks trade more than 90% below their all-time highs. Should investors give either of these stocks a second chance as the bulls stay far away?
Image source: Nikola.
Nikola is struggling to survive
In its pre-merger presentation, Nikola told investors it could ship 600 battery-powered electric vehicles (BEVs) in 2021, 1,200 BEVs in 2022, and 3,500 BEVs in 2023. It aimed to deliver 2,000 hydrogen fuel cell electric vehicles (FCEVs) in 2023.
But here’s what actually happened: After failing to ship a single BEV in 2021, Nikola only delivered 131 BEVs in 2022 and 79 BEVs in the first nine months of 2023 before a series of battery fires forced it to recall most of its vehicles. It also suspended all of its new BEV sales and only produced 42 FCEVs in 2023.
Nikola’s broken promises led to the conviction of its founder and former CEO Trevor Milton on securities and wire fraud charges in Oct. 2022. The company has repeatedly tried to distance itself from Milton, but it’s already gone through four CEOs in as many years. Its latest CFO also lasted a mere nine months on the job before resigning last November.
As Nikola struggled to retain a stable leadership team and ramp up its production, it continued racking up steep losses. For 2023, analysts expect it to generate just $39 million in revenue but post a staggering net loss of $909 million.
To stay solvent, Nikola aggressively cut costs and roughly doubled its share count over the past year so it could raise cash through more stock offerings. But it ended the third quarter of 2023 with just $363 million in cash and equivalents, which drove it to sell another $100 million in shares and $200 million in convertible notes in December.
In other words, Nikola’s near-term survival isn’t guaranteed. With an enterprise value of $810 million, its stock might seem cheap at three times its 2024 sales, but its ongoing production issues could make it difficult for it to match those estimates.
Lucid has a brighter future
Lucid has launched several versions of its Air sedan. It originally aimed to produce 20,000 vehicles in 2022 and 49,000 vehicles in 2023. However, it only produced 7,180 vehicles in 2022, and it expects to produce 8,000-8,500 vehicles in 2023.
Its growth was curbed by supply chain constraints, a series of safety-related recalls, and the broader slowdown of the EV market. It also slashed its prices and postponed the launch of its second vehicle, the Gravity SUV, from 2023 to 2024.
Lucid is still led by Peter Rawlinson, Tesla’s former chief engineer who previously oversaw the development of the Model S. However, CFO Sherry House recently stepped down after spending nearly three years in the position.
Lucid has clearly struggled to ramp up its production since its public debut. But in May 2022 Rawlinson claimed the company could produce more than 500,000 vehicles annually by 2025. He believes Lucid can hit that target with the support of the Saudi Arabian government, which owns more than 60% of the company’s shares through its Public Investment Fund (PIF).
Lucid recently opened the first phase of its Saudi Arabian plant, but it seems unlikely that it can pump out half a million vehicles annually by 2025. It officially expects the expansion of its Arizona plant to boost its annual production capacity to 90,000 vehicles by 2024, while its Saudi Arabian plant — which can only produce 5,000 vehicles annually at the moment — could reach an annual capacity of 155,000 vehicles by the “middle of the decade.”
That inconsistent math makes it tough to trust Lucid’s long-term forecasts, but it’s in better financial shape than Nikola. For 2023, analysts expect it to generate $629 million in revenue and rack up a net loss of $2.9 billion — but the company expects its current liquidity of $5.45 billion to support its growth through 2025. With an enterprise value of $6.7 billion, Lucid looks just a little pricier than Nikola at five times next year’s sales.
The better buy: Lucid
I wouldn’t touch either of these stocks when there are better EV plays to buy. But if I had to pick one over the other, I’d definitely stick with Lucid, because it’s ramping up its production, growing at a more stable rate, and less likely to go bankrupt.
