Elon Musk says Tesla-rival Lucid might be about to die

Elon Musk implies that Lucid Motors, an electric vehicle startup that spun out of Tesla, might be about to die.

Yesterday, Business Insider leaked an email from Lucid Motors that revealed an extremely aggressive strategy to try to avoid cancellations for its Air electric sedan.

Lucid saw its reservations for its electric car drop from 37,000 in Q3 to 34,000 in Q, which it attributed to a mix of deliveries on some of those reservations, but also to customer cancellations.

In the email, Lucid says that “every cancellation is a failure,” and it outlines a very aggressive strategy to avoid those failures that involve calling the customers up to almost a dozen times.

Many took this aggressive approach as a dire sign for the company, including Tesla CEO Elon Musk. In response to this story early this morning, Musk tweeted, “They are not long for this world,” which is an idiom that means that they will not have long to live.

This comment adds to his prior comment on both Lucid and Rivian earlier this year when Twitter’s new owner claimed that the two electric car startups “are tracking toward bankruptcy.”

Lucid has strong links to Tesla, and you could even argue that it was the first EV startup that “spun out” of the company. It was founded by a former Tesla executive and board member, and it is now led by Peter Rawlinson, who was the chief engineer of the Model S before its launch.

After a decade in development, Lucid finally started production of the Lucid Air, an electric sedan competing with the Tesla Model S, last year. Now it is on track to produce between 6,000 and 7,000 Air electric sedans in 2022.

From a financial standpoint, the situation is not great for Lucid, but it is also not dire. Last quarter, it lost half a billion dollars, but it still had about $3 billion in cash and short-term investments.

Electrek’s Take

Technically, Lucid could survive for about another year without new outside investment or turning things around.

Musk is not wrong to express concern here, there’s room for concerns, but I think it’s not over for Lucid. It has big backers, like Saudi Arabia, that could likely put more money in to help the company, and it could also surprise everyone over the next year and turn things around financially.

But it is still losing a lot of money per vehicle, and that needs to change if it wants to survive.

It produced just over 2,000 cars last quarter for $195 million in revenue, but it cost the company almost half a billion dollars to make those 2,000 cars.

Obviously, this kind of negative gross margin is unsustainable, and Lucid needs to drive costs down massively in order to survive as it ramps up production.

I have hope that it can make that happen and prove Musk wrong, but it’s certainly not a done deal.