Founded in 2007 by former Tesla vice president and board member Bernard Tse and partner Sam Weng as Atieva Motors, Lucid started by building batteries for electric buses, cars, and motorcycles. Shares were up around 1% later on Monday after the initial stock dip on word of the Saudi investment in Lucid.
The PIF has committed to US$95 billion in investments in the past two years from firms like British tycoon Richard Branson's space tourism company Virgin Galactic to high-risk tech firms such as Tesla.
Saudi Arabia is already a big investor in Tesla, reportedly with 5 per cent, and was presumed to be the provider of the funds Elon Musk claimed he had lined up to take the $US50 billion company private. Musk indicated that Saudi Arabia would invest in Tesla if it went private, although the PIF did not comment on the possibility.
Tesla's shares fell 2.2 percent on news of PIF's investment in Lucid.
Saudi Arabia's 33-year-old Crown Prince Mohammed bin Salman has talked about using the country's PIF to help diversify the economy of the kingdom, which relies nearly entirely on money made from its oil sales.
The all-electric Lucid Air will have a range of over 400 miles (640 kilometers).
"The convergence of new technologies is reshaping the automobile, but the benefits have yet to be truly realized,"Lucid's Chief Technology Officer Peter Rawlinson said". The chatter died down after Musk announced on August 24 said Tesla would remain publicly traded. Those include a $3.5 billion stake in the ride-sharing app Uber.
The deal supports Saudi efforts to build an environmentally friendly economy, a goal outlined in its Vision 2030 plan to diversify the kingdom away from a reliance on oil.
However, other business promises made by the crown prince have yet to come to fruition.