Lucid's Investors Are Getting Tired of Waiting for a Turnaround

Lucid is feeling the pressure, things have been worse for Carvana, and Lyft isn’t looking too hot, especially not given the recent triumph of its number-one rival. All that and more in this edition of The Morning Shift for Friday, May 5, 2023.

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1st Gear: Running Out of Air

The Lucid Air is a jaw-droppingly beautiful car that’s a better Tesla Model S than the Model S. Most people haven’t seemed to notice, though, as CEO Peter Rawlinson recently admitted. The startup’s problem is demand, not supply, and after delivering but a mere 1,406 cars between January and March — far off the pace to hit the company’s full-year target of 10,000 to 14,000 vehicles — Rawlinson is now facing tough questions. From Automotive News:

Lucid reported 1,932 deliveries and a net loss of $473 million for the October-December period. Zacks Equity Research said on May 1 it expects Lucid to post a higher net loss for the first quarter of this year.

In the wind-up to Monday’s earnings call, investors submitted questions for consideration. Among them: What’s the plan for the demand shortage? When will more affordable models be made? And if there’s a recession, does Lucid have enough cash to survive it?

The most popular question, with more than 14,000 votes, took issue with Lucid’s projections back in 2021, prior to listing shares on the stock market. Lucid said at the time that it expected to achieve about 49,000 deliveries in 2023 across two models, the Air and Gravity. Lucid launched the Air in late 2021.

“Peter, you have said ‘I like to under-promise and like to over-deliver,’” the question began. “When will we see under-promising and over-delivering? It has been the complete opposite so far.”

Yikes. A fair question, though. At least Rivian can hang its hat on the public desiring more of its products than the company could ever reasonably deliver at this early point in its lifespan. Marketing should be the easy part, and yet, Lucid can’t pull it off. I have seen exactly one Air in public that wasn’t obviously a press or manufacturer vehicle, and that was but three weeks ago.

Once again, you have to wonder if the plan to lead with the sedan and eventually roll out the SUV was a prudent one. Oh, sure — us enthusiasts like it, but the niche consumer means nothing to Lucid right now, when it could sure use a lifeline.

2nd Gear: Carvana Takes It Slow

The good news for Caravan is that per-vehicle profit is ticking upward. The bad news is that recent revenue was still down 25 percent compared to the first quarter of 2022, and it still bled $286 million over that span. That’s not the worst loss in the company’s history, but it’s still on the wrong side of the curve. Courtesy Automotive News:

The online used-vehicle retailer reported a net loss of $286 million for the quarter ended March 31, smaller than the $506 million it lost in the first quarter of 2022. Revenue fell 25 percent to $2.6 billion. It also reported an adjusted loss of earnings before interest, taxes, depreciation and amortization of $24 million,significantly smaller than its adjusted EBITDA loss of $348 million a year earlier.

“Given our strong start to the year, we expect to achieve positive adjusted EBITDA in Q2 2023,” CEO Ernie Garcia said in a statement.

Carvana sold 79,240 used vehicles, down 25 percent from 105,185 in the year-earlier period. That sales figure was slightly higher than a preliminary estimate the company gave in a March 22 regulatory filing.

The company attributed the first-quarter sales decline to a “strong pace” of inventory reductions from the fourth quarter of 2022. It also said it cut its advertising spend by 64 percent year over year, which impacted retail vehicles sold. In a letter to shareholders, Carvana said the trimmed advertising spend drove the company to its lowest customer acquisition cost per vehicle in its history.

Higher interest rates and wider credit spreads, plus prioritization of profitability initiatives, also drove down sales volume in the quarter, the company said.

Carvana reported total gross profit per vehicle of $4,303, which it said was a first-quarter company best.

Carvana is pulling back inventory and advertising, which sounds like the most rational thing to do for a company whose business strategy up until this point was to build car vending machines and count on everything else — including legal transfer of ownership — to sort itself out.

3rd Gear: Meanwhile at Lyft

Just a few days after Uber briefly became the darling of Wall Street again, its primary rival saw a very rough day on the market to close out the week. Per Reuters:

Lyft Inc shares tumbled 17% in premarket trading on Friday as the ride-hailing company’s strategy to claw back market share from rival Uber with lower fares stoked concerns about a hit to its profit margins.

At least nine analysts slashed their price targets on a stock that has widely underperformed the market this year.

The company’s market capitalization was set to decline by nearly $700 million to about $3.3 billion, a far cry from the over $24 billion valuation it commanded in its 2019 stock market listing. Uber has a valuation of more than $75 billion.

Lyft gave a disappointing adjusted core earnings forecast for the second quarter on Thursday as efforts to add more riders with price cuts take a toll on profitability, underscoring the hurdles new CEO David Risher’s faces in turning around Lyft.

“Given how dynamic pricing is, Lyft’s report highlights how little it controls the destiny of its own profit and loss statement in the event Uber wanted to cause more damage,” said RBC Capital Markets analyst said Brad Erickson.

Uber CEO Dara Khosrowshahi this week indicated the company would not start a price war with Lyft, saying that “the days of paying for share and essentially using shareholder money to buy share temporarily .. are over.”

Basically, Lyft can cut fares as much as it likes to goose ridership, but investors are convinced it’s going to catch up with the company eventually, one way or the other.

4th Gear: Tesla Remembered It Sells Expensive Cars

The vast majority of Tesla’s price jockeying has focused on its most price-sensitive, volume products: the Model 3 and Y. But Tesla actually raised prices slightly on the Model S and X in China this week, if only by a bit. Courtesy Bloomberg:

All variants of the Model S sedan and Model X sport utility vehicle were raised 19,000 yuan ($2,750), according to the automaker’s website. Those vehicles now start at 808,900 yuan and 898,900 yuan, respectively.

The move, together with $250 bumps in its more popular models and price hikes for the S and the X in the US last month, mark a partial reversal from several rounds of aggressive cuts earlier in the year, which saw the company post its lowest automotive gross profit margin in almost three years in the first quarter.

However, tweaking the prices of its higher-end vehicles is less meaningful to Tesla’s bottom line than adjusting the cost of the Model 3 or Y, with Musk having said the two premium models are “of minor importance” to Tesla’s future.

Remember when the Model S and X were all Tesla had? It’s going to be quite something when the company introduces a next-generation premium sedan in 2029.

5th Gear: The EV Startup Nobody Asked For

Listen: I don’t think about London’s black cabs often, as I don’t live there. So I was unaware that Geely has pretty much been running the firm that makes them since the mid-2000s, and has shepherded its transformation into — what do you expect — an electric taxi company. LEVC, which stands for London Electric Vehicle Company, just unveiled a new, large EV platform. It’s not just for bigger taxis, either; Geely wants to have a go at making the black cab-producer a consumer brand. From Reuters:

LEVC said the platform, dubbed Space Oriented Architecture (SOA), had been jointly developed over the last two-and-a-half years in China, Sweden, the United Kingdom and Germany, would provide EVs with longer range, fast-charging capabilities and advanced driver-assistance features.

Speaking to reporters on Thursday at LEVC headquarters in Ansty, England, executives said the flexible platform could be used for a wide range of EVs, including pickup trucks, large SUVs or even mobile homes.

But executives said they could not provide details of which EVs LEVC would focus on first, when the new EVs might roll off the production line or where they will be made.

Earlier this year, LEVC said Geely was planning a big investment to turn the maker of London’s famous black taxis into a high-volume, all-electric brand with a range of commercial and passenger vehicles.

The company said it could not yet provide an update on those plans.

Must everything be a consumer-facing, branded, private, capital-B Business now? It’s not enough to simply be the company that makes the most iconic and ubiquitous car on London’s streets? Reading Geely’s mission for LEVC, I sort of feel a wave of deja vu to 2020, when everyone on the right suddenly became enamored with the idea of the U.S. Postal Service turning profits, something it was historically never built to do. LEVC’s predecessor, London Taxi International, wasn’t a government-run entity, but it also served its people for decades without aspirations of competing with Volkswagen. That was the right way to be.

Reverse: 15 Minutes, 116 Miles High

On this day in 1961 — 62 years ago — Alan Bartlett Shepard Jr. hoisted his name upon the stars, literally. Courtesy History.com:

Neutral: I Got a New TV

My old TV died, so I picked up one of those swanky LG OLEDs, and it’s beautiful. Nobody ever talks about the headache of getting your old TV hauled away or recycled, though. Best Buy allows you to drop off appliances like TVs for recycling purposes, for a fee — but critically, not in my state of Pennsylvania. See, PA has a law that forbids retailers and manufacturers from charging for household electronics recycling. So what did Best Buy do? Like any company, it just stopped offering recycling in the Keystone State altogether. Give it up for avoidance: corporate America’s favorite strategy of compliance with the law.