Lucid Motors (NASDAQ:LCID) stock has moved into penny territory and may spend a lot of time there. LCID is not an American company. Don’t be fooled by its American CEO or its Arizona factory. Lucid Motors is a Saudi company. The desert kingdom has a 60% stake following a June share purchase .
Lucid is the centerpiece of what the Saudis see as a global electric vehicle brand. Other pieces include Aston Martin (OTCMKTS:AMGDF), the British car maker in which it holds a major stake, and Human Horizons, a Chinese EV maker. No matter their plans, avoid LCID stock.
A Closer Look at LCID Stock
If you’re to put $4 into even one Lucid share, you are betting either that Saudi investment can make Lucid profitable, or they will take you out at a profit. The Saudis have an enormous investment in EVs, and all those investments are under water. At one point their Lucid stake was worth $55 billion. After the latest investment it’s down to $5.4 billion.
That’s not half of it. The Saudis also put $5.6 billion into Human Horizons. The Aston Martin stake cost about $800 million.
The cost structure of the Arizona-based company is unsustainable. Lucid is losing $338,000 on each Lucid Air it produces. The question is whether the Saudi factory, opened in September, can make them for less.
The American front to the Saudi bet comprises power train and battery packing technology. If the Saudis can get costs down to Chinese levels, the thinking goes, they could have a winner.
Tomorrow’s EV Market
My problem with that analysis is that EVs are not like gas powered cars. An EV is a simple machine. Electric motors have just one moving part. They’re generators running backward. There’s no need for a transmission.
What makes them expensive are their batteries, and the electronics first movers like Tesla (NASDAQ:TSLA) have made standard. I believe the electronics were a cover for the battery’s limitations, which give EVs a shorter range than gas-powered cars.
The Saudis hope global labor arbitrage will cut manufacturing costs. They believe their money can access the latest battery technology. They see the Lucid design, with Aston Martin cachet, attracting global luxury buyers.
But tomorrow’s EV market will look very different from today’s.
EVs will compete directly with gas engines based on size and range. Designs will have to adapt to the mass market. By 2026, there will be dozens of EV producers. Getting costs and prices down will be the key to survival.
Another problem is that, with few moving parts, EVs won’t break the way gas powered cars do. The entire industry will need to adapt.
The Bottom Line
All EV makers are racing to the future without a map.
Like other competitors, Lucid is going there with a product that looks just like a gas-powered car. But batteries can scale to almost any size, from watches to bicycles to cars to airplanes. Designers, buyers, and cities will adapt.
The Lucid Air is designed to go fast and protect passengers in an accident. It’s designed around American and Saudi driving distances. It needs to scale down to make it in the crowded cities of tomorrow.
My guess is that the Saudis are going to need more than one lesson here. They’re going to get more than one lesson. Their Lucid losses have just begun.
You don’t want to join them.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.