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Lucid Group investors received a proverbial dose of sunshine for a makeover yesterday, breaking the monotony of the stock’s frequent new lows and reinvigorating bullish spirit for fiscal 2023.
And for the record, Lucid Group announced yesterday that it has now completed its market offering that was announced last November, raising about $600 million in the process through the sale of 56.2 million shares. This offering has been a headwind for the stock in recent weeks. Now that that selling pressure has abated, the stock bulls can try to reassert their influence on the prevailing narrative around the stock.
However, in what came as a pleasant surprise, the Lucid Group also announced that it is raising about $915 million by selling some of its shares to Aiyar Investment Company III, a subsidiary of the Saudi Public Investment Fund. Crucially, this share sale will happen through a private placement and will not affect the share price. When combined with Lucid’s market offering, the Company will earn $1.515 billion in new liquidity to bolster its cash position, which was $3.85 billion at the end of the third quarter of 2022 and comprised of cash and cash equivalents and investments. .
With $3 billion in cash, a cash burn rate of $4 billion per year, limited TAM (about 15% of the market), and a shrinking order book, we’ve long recommended LCID $ As a good short v TSLA dollars long positions. @tweet It is likely that the diagnosis will be correct. https://t.co/2vGANYZMjv
– Gary Black (@garyblack00) December 9, 2022
Keep in mind that many analysts, including Gary Black of The Future Fund, have gone on to point to Lucid Group’s ongoing cash-burn problem as a major headwind. After all, Lucid continues to burn cash at the rate of $4 billion annually. Moreover, with a total addressable market (TAM) of about 15 percent in the United States, the company’s prospects look daunting at a cursory glance. However, it is here that Lucid’s unique strength emerges – the unwavering support of the Saudis.
And while many expected the Saudi Public Investment Fund to start reducing its huge 62.5 percent stake in the Lucid Group, the sovereign wealth fund has so far refused to do so. Moreover, by facilitating the new $915 million capital raise, Saudi Arabia’s Public Investment Fund saved the company from almost certain financial ruin in 2023.
Let’s do the math. Lucid Group is currently burning through about $1 billion in cash every quarter. Thus, the company’s cash position would drop to an estimated $2.85 billion by the end of December 2022. However, given the infusion of fresh cash, the company would end the current quarter with a whopping $4.365 billion — more than enough to cover the entire amount. Fiscal year 2023!
Of course, 2023 will also see reservations open for the Lucid Gravity SUV, with deliveries expected to begin in 2024. As a refresher, the Lucid Group AMP-1 facility in Casa Grande, Arizona, has a production capacity of 34,000 units per year. The company is adding a second assembly line at the facility to handle production of the Lucid Gravity SUV. Once the upgrade is complete, the facility’s annual production capacity will increase to 90,000 vehicles annually. Separately, Saudi Arabia recently awarded the Lucid Group incentives worth about $3 billion to set up a 155,000-unit-per-year production facility in the kingdom. The Saudis also signed an agreement to purchase up to 100,000 electric cars from the company over the next ten years.