I can see why, at first look, Lucid Group (NASDAQ:LCID) might look interesting proper now to some contrarian traders. Following the discharge of its newest quarterly outcomes, LCID inventory has fallen again to single-digit costs.
As a speculative development inventory, LCID could make outsized strikes in both route. All it could take for it to spike as soon as once more is a modicum of optimistic information. In latest months, such conditions have performed out.
Whereas one other catalyst might probably emerge from left discipline, there are three good the explanation why LCID is extra more likely to re-hit its 52-week lows relatively than expertise one other tremendous rally.
With this, let’s dive into each, and see why it’s greatest to keep away from/promote this inventory.
Lucid Retains Falling Wanting Manufacturing Targets
EV firms, together with Tesla (NASDAQ:TSLA), have been responsible at one level or one other of overpromising and under-delivering. Nevertheless, in its comparatively quick historical past as a public firm, Lucid has taken this to an entire new stage.
As you could recall, again in 2021, the corporate offered the investing public with very aggressive development projections. For example, this EV maker was imagined to be producing 49,000 automobiles yearly by this yr. By 2026, the corporate projected that it will be producing over 250,000 automobiles yearly.
However in lower than two years, Lucid has needed to, a number of occasions, stroll again these projections. Worse but, regardless of all of this transferring of the goalposts, the corporate has nonetheless both fallen quick or solely barely beat, these estimates with its precise manufacturing numbers.
The bar is ready pretty low for this floundering EV contender in 2023. Its present aim is to supply 10,000-14,000 automobiles.
Elements just like the easing of provide chain headwinds might allow the corporate to beat again these dialed-back estimates. Nonetheless, this will at greatest solely stem additional declines for LCID inventory. In distinction, having to stroll again this forecast once more might imply one other sharp sell-off for shares.
Falling Reservation Numbers Sign Falling Demand
Through the pre-revenue stage, Lucid Group might have believed it had what it took to construct itself right into a world-class model that would compete with not simply Tesla, however incumbent automakers, for a significant share of the luxurious EV market.
Nevertheless, regardless of the modern design, to not point out the efficiency and vary benefits, of its flagship Air luxurious electrical sedan, the corporate’s automobiles haven’t precisely caught on with prosperous automobile consumers, or any consumers, for that matter.
At the very least, that’s the takeaway from Lucid’s internet reservation numbers. Again in August, reservations for the Lucid Air totaled 37,000. By November, that determine had fallen to 34,000. As of Feb. 21, that determine was at solely 28,000 automobiles, presenting a virtually 25% drop in round six months’ time.
Lucid has pulled all of the stops to reverse-engineer Tesla’s “wow issue” and model cache. However, regardless of these efforts, Lucid seems destined to stay a “wannabe Tesla,” relatively than the “Tesla killer” it initially got down to turn out to be.
Because the main EV maker continues to dominate the luxurious finish of the house, and as European luxurious automakers go electrical, increase this model will probably stay an uphill battle.
There’s Excessive Dilution Danger With LCID Inventory
Lucid was initially thought of one of many prime EV contenders largely because of its robust capital backing. On the finish of 2021, the corporate had $6.2 billion in money.
Inside a yr, Lucid had burned by means of a big portion of this struggle chest, requiring it to boost $1.5 billion in extra capital, by means of the sale of latest shares. Saudi Arabia’s Public Funding Fund, or PIF, led this funding spherical, which elevated LCID’s excellent share depend by 8.4%, and was subsequently dilutive to current shareholders.
Certain, 8.4% might not sound like lots, however this latest capital elevate stands out as the first of a number of infusions. PIF might have been rumored to be contemplating a takeover of Lucid, but as I’ve argued earlier than, PIF might discover buying extra shares in secondary choices to be a more cost effective solution to enhance its possession.
If these extra dilutive capital raises happen, it’s going to probably place extra stress on Lucid inventory. This dilution additionally negatively impacts future upside potential.
With its above-mentioned manufacturing and demand headwinds main dangers, and this third issue limiting the attainable reward, there are many causes to drag the plug on LCID inventory.
On the date of publication, Thomas Niel didn’t maintain (both instantly or not directly) any positions within the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Pointers.
