Despite repeated liquidity injections from its biggest patron, the cash-rich Saudi sovereign wealth fund, Lucid Group has found itself in an unenviable position of paring down its workforce. While this news hammered the company’s shares yesterday, emerging positive commentary from some Wall Street analysts is now bringing some much-needed stability.
Lucid Group’s CEO, Peter Rawlinson, announced yesterday that the company would reduce its workforce by 18 percent. This cut equates to 1,296 employees, based on the 7,200 workers that the company employed as of the end of last year. The cuts will affect “nearly every organization and level, including executives.”
While explaining the rationale behind this move, Rawlinson noted:
“This action is aligned with the cost discipline announcement we made in late February when we reported earnings. We are also taking continued steps to manage our costs by reviewing all non-critical spending at this time.”
As stated earlier, the Saudi PIF is, by far, the largest shareholder in Lucid Group. Toward the end of last year, when the company’s liquidity came under increasing pressure, the Ayar Third Investment Company, an affiliate of the Saudi PIF, participated in a private placement of shares, allowing Lucid Group an avenue to raise $915 million in additional funding.
$LCID had $4.4B cash at YE vs 2023 exp FCF of -$3.5B. The CFO said LCID has enough cash to fund it through 2024 1Q. The company had a backlog of 28K orders as of Feb (-24% vs Aug 2022) vs a product’n target of 10-14K in 2023. It plans to start making the $99K Gravity SUV in 2024.
— Gary Black (@garyblack00) March 29, 2023
As explained by Gary Black in the tweet above, Lucid Group had $4.4 billion in cash at the end of 2022. In contrast, its free cash flow for FY 2023 is expected to compute at -$3.5 billion. While the company’s CFO has previously said that the EV manufacturer’s cash resources were sufficient to fund the operations through the first quarter of 2024, clearly, the situation appears to have deteriorated, thereby prompting the recent layoffs.
Lucid Group aims to produce just 14,000 EVs in the entire 2023. Meanwhile, pressured by Tesla’s price cuts as well as a growing number of competitive offerings, the company appears to be struggling to sell its inventory.
MORGAN STANLEY: “.. other EV startups may need to consider similar actions to what $LCID has announced .. While we reiterate our UW rating and $5 PT, we believe the company has an attractive suite of technologies and, with the right cost management, can be a relevant player ..” pic.twitter.com/hleeEfx5YJ
— Carl Quintanilla (@carlquintanilla) March 29, 2023
Nonetheless, Morgan Stanley appears to have taken a relatively positive view of Lucid Group’s decision to curtail its workforce. The bank’s analyst wrote in a fresh investment note:
“While we reiterate our UW rating and $5 PT, we believe the company has an attractive suite of technologies and, with the right cost management, can be a relevant player ..”
Crucially, the analyst believes that other EV startups might have to replicate the scale of Lucid Group’s layoffs to remain competitive. Bear in mind that Rivian cut its workforce by 6 percent last month to control spiraling costs.
The post Morgan Stanley Sees EV Startups Following Lucid Group’s (LCID) Lead in Curtailing Workforce by Rohail Saleem appeared first on Wccftech.
