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With shares down by over 90% from an all-time high of $58 (reached in early 2021), Lucid Motors (NASDAQ: LCID) stock hasn't been kind to its early investors. Like many companies that went public through special-purpose acquisition mergers, the electric automaker overpromised and underdelivered as interest rates rose and market conditions tightened. Let's dig deeper into what the next five years could have in store.

The EV boom became the EV bust

At the start of the decade, electric vehicles (EVs) looked like the next big thing in automotive technology. They probably still are. But the road to widespread adoption might be more challenging than previously expected. Higher interest rates, consumer preferences, and rising competition are eating away at industry margins and growth potential.

As a smaller company without the capitalization of Tesla or a legacy gasoline-powered business to subsidize its EV segment losses, Lucid is in a uniquely challenging position as it adapts to tighter market conditions. First-quarter earnings highlight its ongoing struggle.

While revenue grew by around 16% to $173 million, this was after a 40% increase in vehicle deliveries (to 1,967). While sales volume is growing, revenue per vehicle is falling likely because management is relying on price cuts to remain competitive, which could delay profitability.

Lucid is burning through cash

In Q1, Lucid generated a gross loss of $232 million, which means it costs more to manufacture and deliver its cars than can be recouped by actually selling them. And that's before overhead expenses like managerial salaries, research, or advertising.

When these outflows are taken into account, Lucid's operating loss balloons to around $903 million, which looks unsustainable compared to its cash, equivalents, and short-term investments of just under $4 billion. Lucid will need to rely on outside financing to stay afloat in the near term. The good news is that the company has some very rich backers.

The Saudi Arabian connection

The key to Lucid's future will likely rely on its relationship with the Saudi Arabian government. The oil-rich Middle Eastern kingdom is eager to diversify its economy away from fossil fuels and believes EVs could play a role in this transition. Saudi Arabia has consistently poured money into Lucid via its public investment fund (PIF). This involved a $1 billion investment in May 2024 and almost $3 billion in 2023.

For Lucid shareholders, the cash infusions are a mixed bag. The good news is that they give Lucid the money it needs to stay afloat, preventing it from going bankrupt. However, this comes at the cost of equity dilution, which erodes current shareholders' claim on future earnings.

As of May, the PIF owns a 60% stake in Lucid. Future equity investments could bring this number even higher, raising the possibility that Saudi Araba will choose to take the company private. Privatization could reward investors in the near term because buyouts are usually done at a premium. However, it would cause investors to miss out on Lucid's long-term potential if the company can overcome its cash-flow challenges.

Is Lucid Stock a Buy?

Lucid remains an exciting way to bet on the EV opportunity because it is much smaller than rivals like Tesla or Rivian, giving it potentially more room to grow if management can sort out current profitability and cash-flow challenges. The company's relationship with Saudi Arabia also serves as a sort of insurance policy against bankruptcy.

Lucid's next five years could be bright. However, it still feels too early to buy shares because of its huge losses and the amount of equity dilution it might take to support the company until it becomes profitable. Shares look like an optimistic hold pending more information.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.