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Things are getting from bad to worse for startup electric vehicle (EV) companies. Yesterday, Lucid Group (LCID), Rivian (RIVN), and VinFast (VFS) all fell to record lows after Ford (F) intensified the price war by lowering the prices of its F-150 Lightning pickup.
The EV price war has taken a toll on startup EV companies’ profitability – or, to put it correctly, amplified their losses. Lucid Motors, for instance, reported an operating loss of around $3.1 billion in 2023, which was wider than the 2022 loss of $2.6 billion.
EV companies are also hard pressed for cash, and many fear going out of business as investors don’t seem too keen to fund the perennial cash burn. Lucid has been somewhat of an anomaly here, as Saudi Arabia’s public investment fund (PIF) - which is its biggest shareholder - has kept its coffers wide open to fund its burgeoning cash burn.
PIF Has Poured Billions of Dollars into Lucid Motors
The cash-rich sovereign wealth fund also participated in the private investment in public equity (PIPE) transaction during the 2021 merger, buying the shares at $15 apiece. It also invested in two rounds of capital raise in 2022 and 2023, pouring in over $3 billion between the two tranches.
More recently, an affiliate of PIF invested $1 billion in a newly created series of Lucid's convertible preferred stock. It was a private placement, and unlike the previous rounds where the fund bought common stock alongside other investors, this time the investment is solely from PIF.
For over a year, there have been rumors that Saudi Arabia might consider acquiring Lucid Motors. PIF already holds around 60% of Lucid’s common stock, and the recently issued preferred stock represents another 12% of its issued and outstanding shares. As the EV industry bloodbath worsens, is a Saudi buyout the last resort for Lucid Motors? Let’s explore.
There Was a Saudi Connection to Musk Taking Tesla Private
Incidentally, when Tesla (TSLA) CEO Elon Musk sent out the infamous “taking Tesla private” tweet in 2018, he believed that he had the backing of PIF for the deal. That wasn’t the case, as we now know, and Musk eventually settled the case with the SEC. As part of the deal, the billionaire paid a $20 million fine, agreed to step down as Tesla’s chairman, and his tweets were required to be vetted by a Tesla attorney. The “vetting” part can be debatable here; judging by Musk’s antics since his Twitter (now X) acquisition, it does not seem these remarks are being really vetted.
Meanwhile, coming back to Lucid, PIF eventually invested in Lucid Motors in 2018. The company is led by a former Tesla engineer, and once fancied itself as the “next Tesla.”
A Saudi Buyout of Lucid Group Could be a Win-Win Situation
I believe a Saudi buyout of Lucid Group could be a win-win situation, as the country sees EVs as a big opportunity and a way to hedge its massive exposure to oil revenues.
The oil-rich kingdom has spent billions towards clean energy, and also formed a joint venture with Foxconn to build electric cars in the country. It has an option to buy up to 100,000 cars from Lucid, and the company built Saudi Arabia’s first ever car manufacturing plant for semi knockdown kits. It is now building a plant to manufacture completely built-up cars in the country.
To sum it up, Lucid Group is a crucial moving part of Saudi Arabia’s green energy strategy, and a buyout could make strategic sense – even more so at currently depressed price levels.
From the perspective of Lucid Motors, a Saudi buyout would make it more financially viable. The continued decline in LCID’s stock price is not doing any favors to its brand image, as a rapidly falling stock price is possibly the worst PR that any company would want.
Many potential car buyers might be shunning models from startup EV companies, fearing their long-term survival amid plunging stock prices. After multiple EV bankruptcies (and with more expected over the next couple of years), the last thing a buyer would want is to get stuck with a car from a company that goes out of business.
To be sure, Lucid still has among the strongest balance sheets among startup EV companies, and has the “Saudi backstop” which takes away the risk of bankruptcy - at least, anytime soon.
However, a Saudi buyout will only strengthen the relationship, and will let Lucid focus on building and selling cars, taking away the additional scrutiny that comes by virtue of being a publicly traded company.
On the date of publication, Mohit Oberoi had a position in: TSLA , LCID , RIVN , F . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
