Company Overview and Status
I would like to use the Chuseok holiday to finish the essay from a brand perspective that I have been writing in my spare time. The company I would like to describe from a brand perspective is Lucid Group, the American EV manufacturing company. Be advised in advance that the purpose of writing this essay is not to solicit your investment, but rather to provide a kind of technical rebuttal to the noise caused by the recent decline in the price of the stock in question.
The predecessor of Lucid Group was Atieva, established in Silicon Valley, USA in 2007. All of its founders came from Tesla, and the current CEO and CTO, Peter Rawlinson, also came from Tesla. There are Tesla experts not only as executives but also in many other key positions. The reason is that many Tesla employees left the company due to friction with Elon Musk in the past, and many of them moved to Atieva. Since its founding, Atieva has accumulated many patents in battery and motor technology. For full-scale EV development, the company hired Peter Rawlinson, then chief engineer of Tesla Model S, as CTO in 2013. In 2014, it received a large amount of investment from Beijing Automobile Works Co., Ltd. and others, but this investment group actually opposed EV development, holding the company back.
Fortunately, the EV development project gained momentum again when China's Beijing Automobile Works gave up its stake in 2015. In 2016, the Lucid Group remodeled a Mercedes-Benz commercial van by equipping it with an electric motor to win a drag race against a BMW i8 and a Dodge Viper, making it the world's fastest van. PIF (Public Investment Fund; Saudi Arabia's sovereign wealth fund), which was interested in this, invested 1.1 trillion won in September 2018, and in December 2019, it began construction of a factory in Casa Grande, Arizona, before it began full-scale mass production. In February 2021, when it agreed with Churchill Capital to the merger of IV SPAC, the company was listed on Nasdaq as 'Lucid Group' in July. As is suggested by the name ‘Lucid Group’, the initial business model was EV manufacturing through ‘Lucid Motors’. The company is planning various business projects in the future. Personally, I am more interested in the ESS (Energy Storage System) that is going to be launched.
Afterwards, 11,000 units of the 'Lucid Air', the first product and flagship sedan presented with the listing, were pre-ordered and there were even rumors of a partnership with Apple, leading to a significant rise in the stock price in the early stages of the listing. By being included in the MSCI US Prime 750 Index in October 2021, the Nasdaq 100 Index in December, and the Russell 3000 Index in June 2022, the company's stock was recognized as an excellent American technology stock and created a good trend in terms of stock price. However, the company's performance did not meet market expectations. As negative factors such as supply chain disruption, energy issues, and purchase cancellations due to global inflation and the Russia-Ukraine war rushed in, the guidance was repeatedly trimmed. In July of this year, earnings met market expectations with production of 2,173 units, but the delivery of 1,404 units raised questions about market demand, and the stock price recently hit a new 52-week low.
Bold and Proactive Offering Decisions
For the above reasons, a lot of negative noise is being generated among media, traders, and investors. However, Lucid is not swayed by this market noise and focuses all its efforts on building its luxury brand image and reputation as planned. In fact, Lucid's stock price decline was largely influenced by funding to secure liquidity. Last August, by announcing a shelf offering of USD 8 billion (KRW 10.5 trillion), the company raised a total of USD 4.5 billion in funding, including USD1.5 billion at that time and USD 3 billion thereafter, and plans to raise USD 3.5 billion in the future. Thanks to the offering, the company expects that it won't need additional financing until 2025. (Tesla raised 10 billion dollars, or about 13.5 trillion won in Korean currency, during the market entry period)
This goal-oriented decision is very desirable for the brand and is a positive factor that will increase the company's production in the long term and be recorded as a non-current & current assets in the financial statements. Although this decision may have a negative impact on the annual accounting, it has no effect on the company's vision or fundamentals. I will cover this in a little more detail later. For reference, the written price per share for the offering, which expires in December 2026, is set at USD 54. As a result, Lucid acquired significant cash reserves before interest rate rose (at the time, it was 2.5%). And given current U.S. benchmark interest rate and projections of future interest rate cycles, we can see that its management's bold, proactive offering decisions last year were well-placed. Thanks to this liquidity, the company continues to open global studios and service centers even in the face of the current high interest rate and inflation, and flexible and rapid brand communication and sponsorship activities through various media have become possible.
Biggest Weaknesses: Brand Reputation and Awareness
Poor brand reputation and lack of brand awareness constitute Lucid's biggest weaknesses. These are the problems inevitably faced by startups or latecomers entering a category already dominated by a first mover. Lucid's brand reputation and awareness are naturally far below that of Tesla or other internal combustion engine vehicle manufacturing brands in the luxury segment. Even if the technology and competitiveness of the product are guaranteed, this is an issue that can usually only be solved over time, and the time can only be shortened through close brand communication. If you were to ask many people to choose a pioneer in the EV market, everyone would choose 'Tesla'. Brands with a pioneer advantage, like Tesla, are granted a strong brand reputation as a reward for pioneering new markets. Based on this, they can assign the desired level of premium to the products being sold.
This brand reputation provides the power to defend against a decline in brand image even if Tesla's CEO Elon Musk, who is referred to as an eccentric, makes a mistake with off-color remarks or acts or a recall occurs due to a fatal product defect. For example, Tesla implements a discount strategy whenever it spots various threats in the market. Tesla is able to continuously lower the selling price of its products is because the company already has high margins. In other words, since it deducts only a small portion of the already high ‘margin’, it does not matter much to its profit indicator. Even though Tesla is a manufacturing company, it has high margins of over 20% to 30%. Such high margins are possible is because most of the manufacturing process is in-house. However, the external brand reputation formed by the pioneer advantage is perhaps a much bigger factor. This brand reputation will provide Tesla with very long-term defense going forward.
Enter the Market with Category Transformation
In terms of target customer base, companies such as the three German luxury brands (Benz, BMW, and Audi) are mentioned as Lucid's real competitors. For the EV market in general, Tesla and Rivian in the US and BYD and Nio in China are brought up. From a tech-race perspective, however, Tesla is the only competitor, and Lucid, a latecomer, has a significant advantage in terms of EV technology excluding mass production and autonomous driving (driving range, charging speed, power output, OTA, etc.) and patent survival. However, even though Lucid's technology and performance are far superior to those of its competitors, the brand reputation accumulated by its competitors provides a high degree of protection (an explanation of this mechanism should be quite complex and is omitted).
In other words, 'Tesla', which pioneered the EV market, and traditional luxury brands such as 'Benz', 'BMW', and 'Audi' support the existence of those loyal customers who are willing to pay a premium even if they release EVs with lower performance than Lucid, thanks to the reputation they have built through internal combustion engine cars. However, despite this defense of brand reputation or purchasing bias, it is only a matter of time before the brand value disappears if continuous product innovation is not supported from a mid- to long-term perspective. Lucid is a company that challenges its competitors' reputations with 'disruptive technological innovation' and still poses questions to its competitors' customers. In this complex competitive situation, I highly value the fact that Lucid's approach has involved strategic category transformation rather than competing in the same category as Tesla' and 'German Big Three'.
This was perhaps inevitable positioning, given the company's ultimate mission or vision, but in the end, the decision was a very good one. In other words, Lucid has become ‘the first pioneer in the luxury EV segment.’ It means that through the mechanism described above, it will be more difficult for latecomers entering the luxury EV segment to steal Lucid's market share. In particular, unless the three leading German companies, which are major competitors, launch products with 'disruptive innovation' that 'significantly' surpass Lucid's current technology, they will have no choice but to rely solely on the 'brand reputation built through internal combustion engine vehicles' for sales. There is no other reason for these results. This is because the company has quickly dominated the luxury market through innovative products. The company has launched the ultra-high-performance model Lucid Air Sapphire this year for no other reason. Lucid has now become a company that also holds the title of ‘the world’s first luxury EV sports sedan.’
Positioning Differentiated from Existing Luxury
A dream that becomes a reality, 'Dream Ahead' ― The luxury pursued by Lucid sets itself apart from traditional luxury brands. While traditional luxury presents an image of conservative and authoritarian wealth, splendor, and extravagance, the luxury pursued by Lucid is expressed as modern elegance, ethics, sustainability, respect for diversity, and praise for innovation. Its innovation is described as being about ‘dreaming bigger’ and ‘building the dream’. To this end, they emphasize that companies, as customers with social status and influence, need to make more meaningful choices for a sustainable world and show respect for human diversity and an ethical stance. These are very special, intangible values that are also awarded to owners of Lucid products.
In order to specifically promote the above concepts, Lucid operates the ERG programs of ‘Black at Lucid', 'Pride at Lucid', 'Sustainability at Lucid', 'Veterans at Lucid', and 'Women at Lucid’. Let's look at a few things: 'Veterans at Lucid' is a group made up of veterans that involves creating employment, leadership development and career growth opportunities for veterans and securing community initiatives. 'Women at Lucid' works to create new opportunities for women in automotive and technology, and more. Regarding talent recruitment, the company provides equal employment opportunities regardless of race, skin color, origin, country, age, religion, disability, gender identity, marital status, etc. Asian or black models often appear in various touchpoint advertisements. But that's not too much. The company is appropriately appealing to the market with class that respects diversity and equality of opportunity instead of extreme PCism.
Diverse and Active Brand Communication
The part of Lucid's business strategy that we value most is its omnidirectional brand communication strategy. Based on a clear understanding of the target, it effectively and authentically conveys the ‘tangible value of innovative technology’ and the ‘intangible value pursued’. Also, in that it focuses its budget and resources on the company's vision without being swayed by market noise, I see great potential in it (since all of the company's activities inform its brand). Such initiatives are difficult to implement unless strong leadership is provided based on the trust of investors and members. This is especially true for brands that are just entering the market. Even consumers who have no experience driving a vehicle already know the performance and technical value of Mercedes-Benz or Porsche. However, the true values of a brand are more clearly conveyed and assimilated through brand communications such as private CRM or ownership programs centered on targets or customers.
Looking at specific brand communication, the company held a company-wide event for the delivery of the 'Lucid Air Dream Edition', a limited edition model created to commemorate its first EV product in 2021. Through this, they have provided thoughtful and wonderful memories for customers and their families who waited for Lucid Air for a long time. These activities naturally increase customers’ brand loyalty. They also did not miss out on communicating with car enthusiasts around the world. At the 2022 Goodwood Festival, the company participated with 'Ben Collins', a famous opinion leader known for 'The Stig', and recorded the fastest mass-produced car time lap with Lucid Air, and also participated in Monterey Car Weeks, Munich International Motor Show, etc.
The company's communication about pop culture and social issues was also good. At the SXSW conference, CEO Peter Rawlinson appeared as a speaker, shared insights on humanity's future transportation and sustainability, and conducted vehicle protocols with sponsors at the world-famous Universal Music and Academy Awards. For Christmas 2022, the company held a Toy Drive for child patients at LA Children's Hospital and also sponsored The Women of DEF JAM for women around the world. The company is actively reaching out to the public with internal story-telling as well. Major examples include the Driving Ambition campaign for members' pride and Tech-Talk, which communicates their innovative technologies in an easy-to-understand manner. Besides, appealing to their capabilities and approaching them with sincerity through opening studios and service centers, software, design, materials, GUI, etc. seems to be an excellent strategic approach.
New Brands and Product Launch Perspectives
The experience or evaluation of the first product that a new brand launches into the market soon becomes imprinted in the evaluation of the entire brand (company). Because Lucid Group is very concerned about brand image and reputation, it has no choice but to launch a (flagship) product that condenses all the values of the brand, and because of its luxury positioning, it has no choice but to pay more attention to performance and finishing quality. This situation makes faster mass production and delivery difficult. Considering the cash burn of new companies, diversifying products (vehicles) is a strategy that is not realistically possible right now.
Instead, the company is deploying a strategy of strengthening the 'spec lineup' of Lucid Air, its first product and flagship model that carries its superior technology. Since this flagship sedan is actually closest to the Lucid brand, increasing contact points for this typical product is a much more advantageous strategy for building a luxury brand image. Of course, business expansion is the company's manifest destiny, so the company is also preparing to diversify its products. At the end of 2022, 'Project Gravity', a J-segment (SUV), and 'development of a low-priced sedan' were announced to the public, and this is going to be launched in earnest in the second half of 2023. The company also offers a 'stealth look' exterior and various leisure accessories as optional features, and further demonstrates its competitive edge in software such as Dream-Drive which is the autonomous driving system, mobile apps, and infotainment UX/UI/GUI.
[Spec Lineup]
· Lucid Air Dream Edition: Limited production to commemorate the launch
· Lucid Air Grand Touring: Longest range version
· Lucid Air Touring: The most popular balance version
· Lucid Air Pure: A reasonably priced version
· Lucid Air Sapphire: High-performance luxury sports sedan
Competitive Edge Leading the Tech Race
Various concepts that describe a brand include 'two-leg'. In this section, I will briefly discuss only the 'technical aspect' of this concept. It means that brand permanence, apart from seeking intangible value, requires constant technological innovation of the product. Lucid Motors has a significant edge in the EV technology competition in this respect. The electric motor used in the Lucid Air vehicles is the smallest on the planet but has the most power, and boasts the highest battery efficiency among all existing EV companies. Thanks to this, Lucid shows battery efficiency that is 9% better than Tesla's Model S and a whopping 40% better than Mercedes' EQS. Additionally, because it is equipped with components that take up less space and a battery pack with a smaller capacity, Lucid Air is the size of an 'E segment' and has the internal space of an 'S segment'.
Like Tesla, Lucid has succeeded in bringing most of the manufacturing process in-house. Not only this integrated manufacturing process, but also software-level integration such as the OTA system, Dream-Drive, and Sanctuary™ by former Apple executive Mike Bell, shows innovative quality and perfection. Ultimately, it is the role of software to directly provide customers with a consistent experience of the excellence of Lucid's various hardware and technologies. And, having such an integrated system has a much greater meaning from the perspective of integration to promote relentless, true innovation, rather than simply lowering manufacturing costs.
[Key EV Technologies]
· 2016
· Selected as the 1st-generation battery supplier for Formula E1
· A converted EV van engaged in a drag competition with BMW i8 and Dodge Viper
· 0 to 60 mile time of 2.94 seconds, 1/4 mile time of 11.3 seconds
· 2017
· Air Prototype 1000 horsepower, 0 to 60 miles 2.5 seconds
· Single-block glass roof unveiled
· 2018
· Selected as a 2nd-generation battery supplier for Formula E1
· 2020
· World's longest driving range of 832km, 1/4 mile 9.9 seconds
· Wunderbox (900V, 32km per minute, 483km with 20 minutes charging)
· 2021
· World’s first Dolby Atmos sound system unveiled
· Lucid Air's drag coefficient of 0.21cd was the highest in the world at the time
· Lucid Air is the world's first based on EPA standards with the longest mileage of 837km.
· Lucid Air selected by Motor Trend as the Car of the Year
· Selected by Green Car Journal as the Car of the Year
· 2023
· ‘Sapphire as Lucid Air's 1,234 horsepower high-performance model
· Driving range 687km, maximum speed 330km/h
· 1/4 mile 8.95 seconds, 0-100 seconds 1.89 seconds
· Winner of World Car Award in the luxury car category
PIF, Saudi Arabia’s sovereign wealth fund
· Lucid's largest shareholder PIF (Saudi sovereign wealth fund)
· Saudi Arabia's Neom City (project budget KRW 710 trillion)
· Neom City and mobility & ESS synergy
As a new automobile manufacturing company, Lucid is inevitably incurring enormous cash burn as it builds production facilities and a mass production system. Recently, due to rising prices and labor costs, operating funds are disappearing more quickly than expected. Cash burn's main reason is that the company aims to cover all mass production processes in-house. In this situation, the existence of PIF, the largest shareholder, is virtually unlimited resources (932 trillion won in operating assets). PIF's current shareholding is over 60%. What is worrisome here is that the largest shareholder may make arbitrary decisions unrelated to the company's mission or vision. Fortunately, PIF fully supports Lucid in making its vision a reality without interfering with management. PIF has not reduced its share of stocks even after the lock-up was lifted, and has been steadily increasing its stake through direct cash liquidity supply for the past two years.
In addition, PIF provides generous support to Lucid through various partnerships. In April last year, the company signed a contract with the Saudi Arabian government to supply more than 100,000 vehicles and built a facility to produce more than 150,000 vehicles per year in King Abdullah Economic City in Jeddah, Saudi Arabia. It is expected that the vehicles will be assembled for production by the time this essay is finalized. PIF is also the second largest shareholder of British luxury car brand ‘Aston Martin’. Using this strategically, the company announced a partnership with Aston Martin in June of this year, providing an EV platform including a 1,500-horsepower ultra-high-performance motor and battery system in exchange for a 3.7% stake worth USD 100 million and USD 132 million in cash. Personally, I think that 'autonomous EV' and 'ESS' are very important elements in Saudi Arabia's new national vision project 'Neom City', so full and continuous support from PIF in the future is inevitable.
Is the possibility of an Apple partnership just a nightmare? Or, is it a Lucid Dream of a Dream Coming True?
A partnership with Apple is a rumor that is constantly being raised. If you properly understand the implications of the 'mobility revolution', you should be able to see how important a role mobility will play in future business and what benefits it will bring. Even for Apple, 'EV', which serves as the most important hub in 'mobility innovation', is a must-have item. In fact, these rumors stem from the two key figures below during the time of CCIV, a spec merger.
Laurene Powell Jobs
· Wife of the late Steve Jobs, former Apple CEO
· CEO of Emerson Collective, CCIV Investment Company Venture Capital
· Long-term friendship with CCIV founder Michael Klein
Jonathan Ive
· Head of Apple Design for the past 20 years
· Operating partner of CCIV, Lucid's Spec merged company
To this day, Lucid Motors' self-driving system 'Dream Drive' and 'software' related departments have a significant number of engineers from Apple and some of them have returned to Apple after the project was over. Of course, these rumors are literally just 'rumors' until the company makes an official announcement, so we can't say for sure, but it is clear that the company is an attractive partner from Apple's perspective.
Closing
Through this essay, I wanted to say that 'a brand is a very long-term investment from the beginning,' and that from a brand perspective, individual stock investment in a specific company is no different. In particular, one can never judge the value of those companies in the market entry stage from a three-month quarterly or yearly accounting perspective. When investing from a brand perspective, you must have as much knowledge as an expert about the company you are investing in, and it is most important to have the insight to judge whether their vision is correct. Because there are so many capital forces and various issues mixed in the market, it is impossible to predict stock prices even one minute later. However, no matter which stock you invest in, you will be able to invest a little more comfortably if you understand the above context before investing. Thank you.
(All images above are copyright of Lucid Motors.)
Hydraft®
Essay(2023)
