The market is quickly realizing electric vehicles just might not be the future. Suddenly, investors are shunning this once hot sector, a grim reality for EV upstarts like Lucid Group (NASDAQ:LCID), which isn’t finding traction.
The deceleration in EV sales growth is accelerating. Manufacturers are leaving the market or scaling back expectations. Apple (NASDAQ:AAPL) just abandoned its EV plans.
Volvo (OTCMKTS:VLVLY) said it won’t dump any more money into Polestar (NASDAQ:PSNY) and luxury automaker Aston Martin (OTCMKTS:AMGDF) delayed introducing its own high-end EV.
Chairman Lawrence Stroll says “The consumer demand (for EVs), certainly at an Aston Martin price point, is not what we thought it was going to be two years ago.”
Even if Lucid’s luxury EV starts at a lower price point than the upscale Aston Martin, it is an ill omen and investors should steer clear. Here’s why LCID stock doesn’t belong in your portfolio.
A Closer Look at LCID Stock
Lucid is spiraling down. The only reason the carmaker’s situation doesn’t look more dire is because Saudi Arabia’s Public Investment Fund, owns a 60% majority stake in the company.
It is keeping the motor company afloat to jumpstart the electric vehicle industry in the country. Absent the sovereign wealth fund’s massive $5.4 billion cash injections Lucid would likely be in its death throes. It is almost there already though it received $1.8 billion alone in the third quarter.
The EV stock is living on borrowed time. On the one hand, it undeniably has a quality product that is a technological marvel. In almost any other time, it would be an unqualified success. But we’re not in those times. Instead, we have an EV market shunning high-prices, a difficult environment for a luxury carmaker.
Lucid estimates it will productive 9,000 vehicles in 2024 but investors know there is a good chance that will be revised downward. Management even acknowledges the likelihood based on demand.
It says it will “prudently manage and adjust production to meet sales and delivery needs.” As there will be no sudden burst of buying, that can only mean downward revisions. That will weigh on Lucid’s finances.
Hit or Miss Goals
Yet Lucid is not going bankrupt. Lucid has sufficient liquidity to survive through at least 2025, and Saudi Arabia is committed to buying 50,000 vehicles. So if Lucid can keep production going it will be able to at least get rid of its inventory to the Saudi government.
That hardly seems an investment worthy opportunity, though. A company living on raising money to survive via the debt and equity markets is not necessarily a healthy business.
Revenue is sliding and operating losses are mounting. It reported a $3.1 billion loss in 2023 and fired hundreds of factory workers to contain costs. Lucid continues to burn through substantial amounts of cash every quarter.
Management also keeps missing production targets. The 8,400 vehicles it delivered last year was well below the original 10,000 goal it had set. That’s why investors should be skeptical of the new goals Lucid laid out, despite the company insisting it worked out all the kinks in its production line.
Better Opportunities Available
Investors buying in now even with the stock down more than 95% from its all-time high are at risk of losing it all. There is no logical reason for Lucid to have such a rich valuation.
The company cut prices on its flagship Air to under $70,000 to spur sales it will make financial ends meet more difficult. It will need to dilute shareholders further to raise more cash. At some point even Saudi Arabia might turn off the spigot.
Buyers don’t want all-electric cars. They are hedging their bets, buying hybrid vehicles instead. Lucid Group produces an excellent product, but its business is in trouble.
There are much better opportunities to bet on instead of buying LCID stock. The risk is too great and will offset any potential reward.
On the date of publication, Rich Duprey did not hold (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.
