The stock market bubble of 2020 and 2021 took many companies public that were supposed to remain private. In particular, many electric vehicles (HOUSE) stocks with shaky business models.

People wanted to copy Tesla’sand investors were feeding EV manufacturers with absurd levels of financing. It was a fun time. Maybe if you hadn’t bought the shares.

A company still around Lucid Group (NASDAQ:LCID). The up-and-coming luxury EV brand went public with much fanfare in 2021, aiming to produce the next generation of luxury automotive products.

Its shares are currently 96% off their all-time highs and are down 26.3% in the past month alone. The company is struggling to scale up production and find willing customers while managing intense cash burn and worrying unit economics. Terrible things.

Here’s what went wrong at Lucid Group and why the stock is down 96% from all-time highs.

A high-end electric vehicle brand

Lucid Group aims to build an EV brand on par with other luxury brands bmwAudi and Mercedes-Benz. It seems to have achieved this goal with its first model, Lucid Air. The sedan costs close to $100,000 and has solid reviews for its comfort and style. This is something that will enable wealthy customers to adopt electric vehicles.

It is not a problem that the car has the best mileage range in its class in terms of battery charge.

However, some problems arose for the automaker. Although major EV brands like Tesla and BYD Lucid Group, which does not compete much in the luxury sedan segment, is having difficulty increasing production and finding willing buyers. Its quarterly production peaked at just 3,500 in the fourth quarter of 2022 and fell to 1,800 in the third quarter of this year.

Increasing competition in the luxury space may cause Lucid Group’s production to cease. While the German automobile manufacturers mentioned above are launching EV models, newly established companies are also launching electric vehicle models. Rivian Automotive Enter the field with state-of-the-art electric trucks.

People, even the richest, do not need an endless number of cars. Lucid Group finds that tackling the premium automotive space is much more difficult than its original prediction. In 2021, deliveries of 90,000 were predicted in 2024, including a yet-to-be-released luxury SUV. As of this writing, it appears the company will produce fewer than 10,000 vehicles this year.

Slowing revenue growth not meeting financial forecasts

Lucid Group predicted that it would generate approximately $10 billion in revenue in 2024, in line with its 90,000 production forecast. However, this did not happen; It didn’t even come close. Revenue in the last 12 months was just $668 million, actually lower than the same period last year.

Revenue numbers are ugly, but cash flow looks even worse. Lucid Group burns $2.9 billion in free cash flow each year from that $668 million in revenue. At the end of last quarter, management said the company had approximately $4.3 billion in liquidity; it’s a fancy term that means funds are available to cover all expenses. That gives the company just under two years before it runs short of cash and has to raise more money by issuing debt or equity.

LCID free cash flow; data YCharts.

More pain is coming

The crazy thing about Lucid Group isn’t even its cash burn. The reality is that the stock is still trading at a market cap of $6.79 billion; This is almost 10 times its subsequent sales; sales decline due to terrible unit economics.

Its price-to-sales ratio (P/S) of 10 is even higher than that of Tesla, an automotive stock with an ultra-premium valuation. A typical car manufacturer toyota It will trade at a P/S level below 1.

Even if you believe Lucid Group can reach profitability at its current sales level, the stock is still down 90% from here. And I think that’s a very long shot.

It’s hard to see how Lucid Group will turn a profit, meaning an uphill battle for shareholders over the next few years. Don’t even consider adding this stock to your portfolio today.

Should you invest $1,000 in Lucid Group right now?

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Brett Schafer It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BYD Company and Tesla. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool has a feature disclosure policy.