24/7 Insights

• Once-promising electric vehicle (EV) start-up Fisker has filed for bankruptcy.
• Struggling Lucid Group Inc. (NASDAQ: LCID) may be next.

Fisker, the once-promising electric vehicle (EV) start-up, has filed for bankruptcy. Not only was the company out of money, but it could not effectively deliver its cars. It made 10,000 of its flagship Ocean vehicles last year but only delivered 4,900. Fisker recently dropped the price of the Ocean by up to $24,000.

One of Fisker’s problems is that it had a convertible note of about $180 million due. According to The Wall Street Journal, it did not have enough money in the bank to honor the obligations.

As small and weak EV companies get into trouble, the question of which company is next is often raised. It would be nice for investors in these public corporations if they all survived a market where Tesla Inc. (NASDAQ: TSLA) and every large car manufacturer have become desperate players. Legacy manufacturers are preparing for an EV future by spending billions of dollars, even while struggling with revenue. Ford and GM are having trouble getting sales figures close to Tesla’s.

Why Lucid May Be Next

The stock market is often right. Shares in another small EV company are down 60% in the past year, while the S&P 500 is up 24%. The pessimism about Lucid Group Inc. (NASDAQ: LCID) is reflected in its price. At $2.61, it has become a penny stock. The price is also near its 52-week low.

How bad is Lucid’s situation? Late last year, Yahoo put its loss at $227,000 a vehicle. How can any car company dig itself out of such a deep hole?

Lucid does have one ally in the Saudi Arabia sovereign wealth fund. Ayar Third Investment Company, an affiliate of the Public Investment Fund, put $1 billion into the company via a series of convertible preferred stock, which was part of a private placement, the company reported. That money, which will be used for working capital, may not be enough to keep Lucid in business for more than a year.

In the most recent quarter, Lucid had revenue of $173 million, up from $149 million in the same quarter the year before. However, it posted a huge loss of $685 million, compared to a loss of $780 million the year before. Even if revenue increases by three times, Lucid will continue to lose money because of its high cost of revenue.

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