Lucid Group (NASDAQ:LCID) stock got an equity lifeline from Saudi Arabia but the stock fell 13%.
Investors saw the $3 billion equity offering as watering down their interest in the troubled EV maker. Lucid shares opened June 1 below $6.80, the market cap falling below $13 billion.
The move to raise capital comes less than a day after the company switched auditors, dismissing Grant Thornton in favor of KPMG.
LCID Stock Benefits From Saudi Backing
Lucid, which makes the Lucid Air, starting at $90,000, has always had an advantage over competing electric vehicle startups like Canoo (NASDAQ:GOEV), Hyzon Motors (NASDAQ:HYZN), and Lordstown Motors (NASDAQ:RIDE). Why? Lucid has the backing of Saudi Arabia through its Public Investment Fund (PIF).
But that backing carries a price — including an expectation that Lucid will build a factory in the country. Lucid promised to deliver such a factory, now due to launch deliveries in the third quarter.
The need for new capital illustrates a second problem for Lucid. It burned through over $1 billion of cash in the first quarter. Management previously believed they could get through the second quarter of 2024 without raising new money.
According to a Lucid Motors press release, an affiliate of the Saudi Public Investment Fund (PIF) is buying 265,693,703 shares for approximately $1.8 billion. That comes out to $6.77 per share. The fall in the stock overnight brought its price slightly below that figure.
To be fair, not every investor is down on LCID stock. Vanguard has raised its equity investment by 10%, buying 5.4 million shares.
What Happens Next
InvestorPlace readers have been warned away from Lucid in the past. Analyst Louis Navellier called it “all hype, little hope” on May 24. I wrote the company was “running out of road” on May 8.
The company may do well, thanks to the Saudi PIF. But it’s unlikely investors in LCID stock will.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
