People test drive the Dream Edition P and Dream Edition R electric vehicles at the Lucid Motors factory in Casa Grande, Arizona, on September 28, 2021.

Caitlin O’Hara | Reuters

Luxury electric car manufacturer Clear seems to have a demand problem.

The company said during its earnings report for the fourth quarter Wednesday that it had “over 28,000” reservations for its Air since February 21. That was a surprise, considering the company had claimed “over 34,000” reservations in November and delivered fewer than 2,000 vehicles in the fourth quarter.

Even more surprising: Lucid said it plans to build just 10,000 to 14,000 vehicles in 2023, far fewer than the roughly 27,000 Wall Street analysts had expected — and than the roughly 34,000 vehicles a year Lucid’s factory is set to build.

Shares in the company have fallen around 15% since Wednesday’s report.

Lucid faced a tough road to get Air in production. The company spent a large part of the first half of 2022 distortion to secure key components and sort out logistics problems. Now, with production running more or less smoothly, it seems to be facing a new problem: not enough reservations are being converted into orders.

CEO Peter Rawlinson acknowledged as much during the earnings call when he reminded listeners that reservations are not binding.

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“We’ve solved the production. That’s not the problem here now,” Rawlinson said. “My focus is on sales. And here’s the thing: We have what I believe is the very best product in the world… Too few people are aware of not only the car but even the company.”

Rawlinson went on to say he believes it’s a “totally solvable problem” and plans to focus on “boosting customer awareness” in 2023.

More marketing can help. But it’s clear that demand for Lucid’s vehicles isn’t materializing as quickly as the company expected, raising some tough questions for investors.

First, how big is Lucid’s potential market? Any estimate of how much Lucid could grow has to start with an estimate of the “total addressable market,” and it seems the company’s estimates on that front may have been too rosy, given that its factory is set up to produce many more vehicles than that are now being built.

Running a car factory well below capacity isn’t exactly a path to profitability, as CFO Sherry House admitted during Lucid’s earnings call.

“Because we produce low-volume vehicles on production lines designed for higher volumes, we have and will continue to experience negative gross profit related to labor and overhead costs,” House said.

That leads to a second, related question: How long will Lucid have to operate its factory at a loss? Or, put another way, how long will it take for Lucid to reach profitability—and how much money will it need to raise between now and then?

Bank of America analyst John Murphy has long been bullish on Lucid, but in a note to investors following Lucid’s earnings report, he lowered the bank’s rating on the stock to hold, from buy. Murphy wrote that he now believes Lucid will not break even before 2027, and that the company will need to raise more capital sooner than he had previously anticipated.

The good news is that Lucid has an investor with deep pockets. Saudi Arabia’s public investment fund owns about 62% of Lucid and has shown — most recently in December, when it invested an additional $915 million — that it is still willing to finance the company. As long as it has the backing of the Saudi fund, Lucid should be able to continue.

But the path to profitability—and to a big payday for Lucid’s investors—now looks longer.