Lucid Motors Announces Layoffs amid Slowing Growth

Lucid Motors (NYSE: LCID) would lay off around 1,300 employees and reduce its workforce by 18% as the EV (electric vehicle) company grapples with slowing growth and perennial cash burn.

In a leaked internal memo, Lucid Motors CEO Peter Rawlinson—a former Tesla executive—called the layoffs a “painful but necessary decision.” He added that the layoffs would impact all the business functions and impact employees as well as executives.

Rawlinson added, “We are also taking continued steps to manage our costs by reviewing all non-critical spending at this time.”

In an SEC filing, Lucid confirmed the layoffs calling it a “restructuring plan” that is “intended to reduce the Company’s operating expenses in response to evolving business needs and productivity improvement.”

EV layoffs mount amid slowing growth

Meanwhile, Lucid Motors is not the only automotive company that’s impacted by slowing growth. Rivian which also went public in 2021, the same year as Lucid, has also announced two rounds of layoffs over the last year cutting its workforce by around 12% in aggregate.

Several Rivian executives also quit the company after it missed its 2022 production guidance of 25,000.

Steve Gawronski, the vice president in charge of parts purchasing, and Randy Frank, vice president of body and interior engineering are among the employees who have departed from Rivian this year. Frank was previously with Ford and joined Rivian in 2019.

Rivian witnessed an exodus of top executives last year also. In September, its general counsel Neil Sitron also exited the company. In the fourth quarter of 2022, Patrick Hunt, a senior director in the strategy team also quit.

Even legacy automakers like Ford and General Motors have cut their workforce as they grapple with slowing vehicle sales amid rising interest rates and the economic slowdown.

Tesla laid off some of its full-time employees last year, but the Elon Musk company added more contractual employees. Tesla also missed its 2022 delivery guidance but still expects its deliveries to grow at a CAGR of 50% over the long term.

Lucid Motors Announces Layoffs amid Slowing Growth

Coming back to Lucid Motors, the company expects to complete the layoffs in the second quarter and estimates that they would lead to a charge between $24 million to $30 million.

Last year, Lucid Motors produced only 7,180 cars and delivered 4,369 of these. The actual production was only about a third of its original guidance.

It expects to produce between 10,000-14,000 cars in 2023. The guidance is even lower than its original 2022 guidance. Also, it would imply a production run rate similar to the fourth quarter of 2022.

Lucid Motors’ 2023 guidance fell short of estimates

The guidance was only about half of what analysts were expecting and less than a third of the nearly 50,000 that it had forecast when it went public in 2021.

Lucid Motors said that while it does not generally provides granularity on the production breakdown in every quarter, in 2023, it expects Q1 production “to be down significantly on a sequential basis.” The company took a downtime in January due to a planned inventory count.

It also added that “due to supply chain challenges, we were unable to deliver on the popular stealth look option resulting in a reduction of buildable configurations heading into Q1, and so we made a strategic decision to moderate some production as we transition to buildable configuration.”

LCID reported a fall in reservations

While releasing its Q4 2022 earnings, Lucid Motors said that it had a total reservation of over 28,000. During the Q3 2022 earnings call, the company said it has 34,000 reservations while the figure was 37,000 in the previous quarter. LCID’s reservations have now dropped for two consecutive quarters.

The company would also now stop providing the reservation number and said that the current reservations are a revenue opportunity of $2.7 billion. Here it is worth noting that the reservations do not include the upto 100,000 vehicles that Saudi Arabia could order from the company.

Incidentally, Rivian would also stop providing its reservation numbers. Rivian’s reservation numbers have been on an upwards trajectory, unlike Lucid Motors. However, the decision to stop providing the metric further corroborates the demand fears.

Rawlinson said that Lucid Motors needs to increase brand awareness

During the earnings call, Rawlinson emphasized multiple times that the company is no longer constrained by production unlike in 2022 when supply chain bottlenecks took a toll on its production.

The company also stressed that it has the capacity to produce more cars in the year. Lucid Motors guidance meanwhile baffled many analysts as despite having reservations twice its guidance’s upper end, the company is not scaling up production.

Lucid Motors said that firstly the reservations are not binding and secondly it is prudent with the guidance considering the macroeconomic slowdown.

The company said that it needs to increase its brand awareness. Rawlinson said, “we need to amply focus now away from production to amplifying customer awareness that we’ve got this amazing car with unprecedented range technology efficiency, incredible driving machine, a great driver’s car.”

He added, “We need to amplify that message and broaden the awareness, which in turn will drive sales. And that is the focus right now.” While he termed it an “entirely solvable problem” markets don’t seem to believe so.

LCID is cutting costs

Lucid Motors listed growth and cost-cutting as the focus areas for 2023. The company’s CFO Sherry House said, “There are 2 areas of cost that we are zeroing in on. The first is driving down the cost per vehicle. The second is cost optimization of operating expenses.”

Lucid Motors raised $1.5 billion cash by selling stocks in Q4 2022. Of this, an affiliate of Saudi Arabia’s PIF (public investment trust) invested $915 million taking its total investment in the company to $3.6 billion. PIF is the largest stockholder of Lucid Motors.

During the earnings call, House said, “The public investment fund of Saudi Arabia has been a committed investor and a strategic partner for Lucid for many years, and we’re so grateful for their partnership and support.”

In response to a question on whether Saudi Arabia was considering taking Lucid Motors private, House said, that as “a policy, Lucid does not comment on market rumors, and so we don’t have anything to say specific to this question.”

She repeated her prepared remarks about the Saudi investment and added, “PIF has not only been a committed investor but also a strong strategic partner, and we’re very grateful for the partnership.”

Lucid ended 2022 with total cash and cash equivalents of $4.4 billion which it says would fund its operations until at least the first quarter of the next year.

Lucid Motors also announced a recall

Recently, Lucid Motors recalled around 670 vehicles over the risk of power loss. Markets have anyways been apprehensive about the execution capabilities of startup EV companies and the recalls only corroborate the fears.

Lucid Motors stock fell over 7% yesterday after announcing the layoffs but is still up around 12% for the year, partially because of reports of a Saudi buyout.