The stock market bubble of 2020 and 2021 brought many companies public that should have remained private. Concretely, many electric vehicles (VE) stocks with fragile economic models.

People wanted to copy Teslaand investors were feeding electric vehicle makers with absurd levels of funding. It was a fun time. Maybe only if you didn’t buy the shares.

A company still in operation is Lucide Group (NASDAQ:LCID). The aspiring luxury electric vehicle brand went public with much fanfare in 2021 as it aims to build the next generation of premium automotive products.

Today, its stock is down 96% from all-time highs and 26.3% in the last month alone. The company is struggling to increase production and find willing customers while managing intense cash burn and a worrying economic situation for its units. Scary stuff.

Here’s what went wrong with Lucid Group and why the stock is down 96% from all-time highs.

A premium electric vehicle brand

Lucid Group aims to create an electric vehicle brand comparable to other luxury brands such as BMWAudi and Mercedes-Benz. This objective seems to have been achieved with the first model marketed, the Lucid Air. The sedan costs nearly $100,000 and has solid reviews for its comfort and style. This is something that should encourage wealthy customers to embrace electric vehicles.

It doesn’t hurt that the car also has a best-in-class battery charging range.

However, some problems arose for the automaker. Even though major electric vehicle brands like Tesla and BYD With little competition in the luxury sedan segment, Lucid Group has struggled to expand production and find willing buyers. Its quarterly production peaked at just 3,500 in the fourth quarter of 2022 and fell to 1,800 in the third quarter of this year.

Increased competition in the luxury sector could lead to Lucid Group’s production being blocked. The aforementioned German automakers offer electric models, while start-ups such as Rivian Automobile Enter the space with high-end electric trucks.

People – even the richest – don’t need an infinite number of cars. Lucid Group finds the premium automotive sector much more difficult to tackle than its initial predictions. In 2021, it forecast 90,000 deliveries in 2024, including those of a yet-to-be-released luxury SUV. As of this writing, it appears the company will produce fewer than 10,000 vehicles this year.

Slowing revenue growth that fell short of financial forecasts

Consistent with its production estimate of 90,000 units, Lucid Group predicted it would generate approximately $10 billion in revenue in 2024. That didn’t happen; we didn’t even get close. Over the past 12 months, revenue was just $668 million, which is actually lower than the same period last year.

The revenue numbers are ugly, but the cash flow looks even worse. Of that $668 million in revenue, Lucid Group burns through $2.9 billion in free cash flow each year. At the end of last quarter, management said the company had about $4.3 billion in liquidity, a fancy term for funds available to pay all its expenses. That gives the company just under two years before it runs out of cash and needs to raise more debt or equity.

Free cash flow LCID; data by Y charts.

More pain to come

The craziest thing about Lucid Group isn’t even its cash burn. It’s the fact that the stock still trades at a market cap of $6.79 billion, nearly 10 times its last sales — sales that are down due to terrible unit economics.

A price-to-sales (P/S) ratio of 10 is even higher than Tesla, which is an auto stock with an ultra-premium valuation. A typical car manufacturer like Toyota will trade at a P/S less than 1.

Even if you believe Lucid Group can achieve profitability at its current sales level, the stock still has a 90% downside. And I think that’s far-fetched.

It’s hard to imagine how Lucid Group will ever turn a profit, which means a tough task for shareholders over the next few years. Don’t even think about adding this stock to your portfolio today.

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Brett Schaefer has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends BYD Company and Tesla. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool has a disclosure policy.