Lucid faces price pressure from Tesla, slowing economy

After struggling last year to ramp up production at its Arizona factory, Lucid Motors finally had some positive manufacturing news this month. The electric vehicle startup met its 2022 production estimate after cutting its forecast twice.

Output for the pricey Air sedan was modest — just 7,180 cars over 12 months, Lucid said. But the milestone marked a small victory for a company that's been burning through cash as it grapples with supply issues and growing pains.

Lucid now faces pricing pressures as interest rates rise, the economy slows and more EV competitors emerge. And rival Tesla has taken the radical step of slashing its prices by as much as $13,000 to maintain its growth momentum.

Lucid's 2022 vehicle deliveries of 4,369 sharply lagged production numbers for the Air, which launched in 2021 starting at $170,500 including shipping. The automaker reported in November that customer reservations fell to 34,000 in the third quarter from 37,000 in the second, as cancellations outpaced new preorders.

"It's taken them too long to scale up production," said Loren McDonald, CEO of analysis and consulting firm EVAdoption. McDonald had put down a $300 refundable deposit on the most inexpensive trim of the Air, the under-$90,000 Pure, which Lucid prioritized last for production. McDonald instead replaced his Tesla sedan with a Tesla crossover.

"The bulk of the reservations were probably for the Pure, and then people just couldn't wait any longer," said McDonald. "I really like that company and want them to do well. I love that car, but I'm not going to spend $160,000."

Lucid had originally forecast 2022 production of 20,000. It also raised Air prices last year amid rising costs.

A small number of Air Pure deliveries began in late December, barely meeting Lucid's 2022 self-imposed deadline to introduce the base trim. This year, it plans to launch the $250,000 Air Sapphire, a trim-topping performance version.

Lucid CEO Peter Rawlinson has said that prices for the company's vehicles will come down over time and that startups often have to launch with their most expensive products. Lucid has plans for a new platform later in the decade for smaller, more accessible models. Its next vehicle, the Gravity crossover, is due in 2024 on the Air platform.

But while Lucid works to increase Air production, competitors are moving into the luxury sedan segment, even as the market for sedans in general shrinks.

According to data from Experian, the Mercedes EQS sedan had 8,192 registrations in the January to November 2022 period, compared with 2,915 for the Lucid Air. The BMW i7, a newcomer to the EV market, had 121 registrations, and the Tesla Model S had 25,362.

Lucid gets high praise from auto industry experts for the Air, which has the longest battery range of any EV, at greater than 500 miles on top trims. The Air also has a high-tech luxury vibe compared with the austere aesthetic preferred by Tesla.

"Lucid has a done an excellent job of addressing many of Tesla's foibles," said Karl Brauer, executive analyst at iSeeCars.com. "The vehicles have a more luxurious look and feel to them, which I believe is intentional to draw in Tesla's higher-income customers."

Brauer said Lucid's challenge is launching in the EV space at the same time legacy brands are jumping in with both feet.

"Tesla built its following over 12 years and with essentially zero competition," Brauer said. "Lucid is facing a much tougher climb in building its customer base against more than just Tesla. The traditional brands have gone all-in on EVs, putting upstarts like Fisker, Lucid, Rivian and VinFast in a position Tesla never had to deal with."

Just last week, Tesla cut the price of the Model S sedan by $10,000 to $96,630 including shipping. While the base Air Pure starts at $89,050 including shipping, the current launch edition of the trim has features that push it to just over $100,000.

Lucid also has lost the $7,500 tax credit for buyers laid out in last year's Inflation Reduction Act. The new law set a $55,000 price cap for electric sedans to qualify, along with income caps for buyers.

On the plus side, Lucid was already preparing to deliver more accessible versions of the Air in recent weeks by removing content compared with its higher-price vehicles, according to previous company statements. The base Air Pure comes with a metal roof, rather than glass, rear-wheel drive rather than all-wheel drive, and a smaller battery pack.

The midlevel Air Touring, which started deliveries in November, comes standard with a metal roof for $109,050 with shipping. A glass roof, which is standard on the Tesla Model S, adds $4,500 to the price of the Lucid. The Air Touring comes with a standard driver-assistance suite, but the Pro version adds $10,000, and an upgraded stereo is $4,000.

Likewise, Lucid said in December that it was removing features from its high-level Grand Touring trim to get the price down. Those standard features included the Pro driver-assistance and the upgraded stereo, as well as 21-inch Aero Blade wheels.

The Grand Touring now starts at $139,650, down from $155,650 previously. Both prices include shipping.

"This flexibility of options for Air Grand Touring is in direct response to customer feedback requesting more choice for these available features," Lucid said in a press release. "Air Grand Touring retains its 516 miles on a single charge, still comes with superior interior materials, luxury features like massaging seats and 819 horsepower with all-wheel drive."

Whether such pricing flexibility will be sufficient for Lucid to maintain its momentum remains a question. Lucid is also competing with brands offering new electric crossovers, which many buyers prefer over sedans, McDonald said. Lucid might have had better success by launching a competitor to Tesla's Model Y crossover rather than starting with a sedan, he said.

Brauer suggested Lucid needs to cut prices, even though that would impact the automaker's financial results.

"We're seeing a pullback in car prices across the board," said Brauer. "This means Lucid has to respond, and lower prices mean lower profits. Lucid is going up against Audi, BMW, Genesis and Mercedes-Benz, plus Tesla, in the luxury EV space. These brands have more resources and much larger dealer networks to withstand an economic downturn."