Global Tariffs And Cash Burn Will Erode Profitability

Key Takeaways

• Persistent high costs, restrictive financing, and limited market diversification threaten Lucid's revenue growth and long-term profitability.
  
• Intensifying industry competition and regulatory volatility pressure margins, making future capital raises or restructuring increasingly likely.
  
• Strategic partnerships and technology expansion, combined with improved production and premium branding, position Lucid for stronger margins, reduced risk, and sustained growth in the luxury EV market.

Catalysts

A technology company, designs, engineers, manufactures, and sells electric vehicles (EV), EV powertrains, and battery systems.

• Persistent elevated interest rates and tighter monetary policy are expected to make auto financing more restrictive, particularly for high-priced luxury electric vehicles. This is likely to reduce overall demand for Lucid's models, directly constraining revenue growth and putting downward pressure on margins.
  
• Lucid is exposed to rising global trade tensions and evolving trade barriers, especially new or increased tariffs on imported automotive parts and materials. Management now forecasts potential gross margin headwinds of 8% to 15% just from tariff changes, with ongoing regulatory volatility adding further uncertainty to cost structures and long-term earnings.
  
• The company continues to face significant cash burn as a result of high fixed costs, heavy research and development expenditures, and aggressive expansion plans-including a capital expenditure budget of $1.4 billion for 2025 and persistent negative EBITDA. If sales do not scale rapidly, future dilutive capital raises or restructuring become likely, weighing on net margins and long-term shareholder value.
  
• Lucid remains concentrated in the premium segment, making it vulnerable to both economic downturns and sector oversupply. With luxury EV demand potentially softening amid macroeconomic uncertainty, as well as a lack of diversification into mass-market vehicles until at least late 2026, the company's revenue base remains narrow and difficult to scale efficiently.
  
• As competition in the electric vehicle space intensifies-with both legacy automakers and large EV incumbents offering more models and escalating price wars-Lucid is likely to face substantial pressure on average selling prices, market share, and gross margins. This could result in lower revenue growth, weakening profitability, and a structurally challenged competitive position over the long term.

Lucid Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Lucid Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Lucid Group's revenue will grow by 55.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Lucid Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Lucid Group's profit margin will increase from -357.2% to the average US Auto industry of 5.4% in 3 years.
• If Lucid Group's profit margin were to converge on the industry average, you could expect earnings to reach $178.0 million (and earnings per share of $0.05) by about August 2028, up from $-3.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 30.0x on those 2028 earnings, up from -2.4x today. This future PE is greater than the current PE for the US Auto industry at 18.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Lucid Group Future Earnings Per Share Growth

Risks

• Sustained support and strategic partnership from the Saudi Public Investment Fund have extended Lucid's liquidity runway into late 2026 and provide a backstop for further growth investments, significantly reducing insolvency risk and supporting future earnings and balance sheet strength.
  
• Strong year-over-year growth in vehicle deliveries alongside increasing production capacity, particularly with resolution of earlier supply chain issues and the ramp-up of Lucid Gravity, sets up the company for higher revenue growth and improved utilization of fixed assets, positively impacting gross margins and net earnings.
  
• Expanding technology licensing and component supply arrangements, such as the ongoing dialogue with multiple OEMs and the successful Aston Martin deal, open new high-margin revenue streams and industry partnerships, potentially bolstering overall revenue and profit margins long term.
  
• Investments in in-house technology, vertical integration, and strategic manufacturing assets (including the Nikola acquisition and collaborations like KAUST) enhance flexibility to mitigate supply chain and tariff risks, increase innovation speed, and lower production costs, with positive implications for operating margins and financial resilience.
  
• A robust brand, award-winning products, and accelerating marketing efforts-supported by consistently positive reviews and repeated Best Luxury Electric Car awards-can continue to drive demand among premium EV buyers, lift average selling prices, and improve revenue and margin trajectories as Lucid grows.

Valuation

• The assumed bearish price target for Lucid Group is $1.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Lucid Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $178.0 million, and it would be trading on a PE ratio of 30.0x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $2.44, the bearish analyst price target of $1.0 is 143.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.