Lucid Group (NASDAQ:LCID) stock could be in bigger trouble than you think.
Tesla (NASDAQ:TSLA) CEO Elon Musk is known for being outspoken. One could say the same of Peter Rawlison, Lucid’s chief executive.
Rawlison isn’t shy about his plans to wage war with Tesla. Some LCID stock investors might find this worrisome, as it won’t be easy for Lucid to compete with Tesla.
Not long ago, Louis Navellier and the InvestorPlace research staff gave a “D” rating to Lucid Group shares. I agree with that rating and feel that the risks outweigh the benefits, so keep your position size small (or none at all) if you’re planning to invest in Lucid Group now.
Lucid Group’s CEO Prepares to Battle Tesla
Rawlinson and Lucid Group are highly ambitious in 2023. For example, Lucid Group is boldly making a move into China’s EV market. Lucid is riding high on its new partnership with Aston Martin (OTCMKTS:ARGGY), in which Lucid Group will provide EV powertrain and battery systems to Aston Martin.
As Louis Navellier and the InvestorPlace research staff explained, Lucid Group’s management probably shouldn’t brag too much about the deal with Aston Martin. After all, it will only provide a $232 million capital infusion to Lucid.
That won’t likely be enough to put Lucid Group in a strong capital position. Remember, Lucid is an unprofitable business, and the company’s rapid cash burn is alarming. In fact, Lucid Group’s position of cash and cash equivalents plummeted from $1.736 billion as of Dec. 31, 2022, to just $900 million three months later.
Yet, Rawlinson seems overconfident about his company. In an interview, Rawlinson teased upcoming EV models that will be “competitors” to Tesla’s Model 3 and Model Y.
Frankly, it’s going to require a lot of capital to compete head-to-head with the mighty Tesla. Just the advertising and marketing costs alone will be considerable. And, as I just pointed out, Lucid Group doesn’t have a stellar capital position.
Another Big Risk for LCID Stock
I’ve already pointed out several risks facing Lucid Group and its shareholders. Now, here’s another one. In a development you may already be aware of, Rivian Automotive (NASDAQ:RIVN) agreed to adopt Tesla’s EV charging standard.
I’m certainly not suggesting that this is a sufficient reason to buy RIVN stock right now. However, I’ll at least concede that it’s a smart move for Rivian to accept Tesla’s charging standard. It means that Rivian won’t have to build its own charging network, and can instead offer access to Tesla’s extensive network.
In contrast, Rawlinson rejected Tesla’s charging standard. His reason, apparently, is that a charging standard should be open to the public, not controlled by Tesla.
“What matters is that there is a standard that everyone can use, that it’s an open standard, and given there is taxpayer money involved [via the Infrastructure Investment and Jobs Act], that it’s future-proof and reliable,” Rawlinson explained.
This strikes me as stubborn and wrongheaded. I suspect that Rawlinson’s visions of grandeur are getting the best of him. It’s already quite risky for Lucid Group to expand into China and to introduce vehicle models to directly compete with Tesla’s popular EVs.
Now, Rawlinson is going off the deep end by refusing to provide Lucid’s customers with access to Tesla’s vast fast-charging network. In the long run, Rawlinson will either be vindicated (not likely), or proven to be drastically wrong (most likely).
Understand the Risks With LCID Stock
The biggest risk facing Lucid Group, even beyond the automaker’s subpar capital position, is Rawlinson’s attitude. He needs to show more respect for Tesla, a much bigger and better-capitalized competitor.
Hopefully, Lucid Group will soon accept Tesla’s charging standard like Rivian did. Unless that happens, however, it’s difficult for me to envision a positive outcome for Lucid Group.
Therefore, it’s wise to either maintain a very small share position in LCID stock, or simply to avoid it altogether.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
