Relating to Lucid Group (NASDAQ:LCID) proper now, all eyes are on the electrical automobile firm’s upcoming earnings launch on Could 8. Some could also be optimistic, however many are involved that the discharge will lead to LCID inventory tanking.
InvestorPlace contributor David Moadel sees this taking place, as he argued final month. Primarily, as a result of Lucid’s disappointing manufacturing and supply numbers final quarter level to underwhelming outcomes for the interval.
So does InvestorPlace analyst Louis Navellier. As he famous just lately, attainable downward revisions to steering may additionally drive a pointy transfer decrease for LCID after the outcomes hit the road.
Nonetheless, stated plunge may pale compared to the large selloff Lucid might expertise just a few months from now. Why? All of it has to do with this early stage firm’s heavy money burn.
This might lead to an occasion that causes shares to go down like a lead balloon.
LCID Inventory: What Might Actually Knock It Decrease
Over the 2 buying and selling days following Lucid Group’s final earnings launch on Feb. 22, the EV maker’s shares fell by greater than 15%. The same drop is probably not out of the query, even because the market’s expectations are low on account of final month’s supply numbers launch.
If such a drop happens, it’s attainable that a few of these traders sitting on the sidelines with LCID inventory at the moment may leap in, considering they’re getting in at a great entry value. In spite of everything, whereas Lucid’s present efficiency is probably not as much as snuff, that is probably not the case indefinitely.
As an example, whereas the Lucid Air luxurious EV sedan has been a bust to date, issues could possibly be completely different for Lucid’s upcoming SUV, the Gravity, set for launch in 2024. Nonetheless, effectively earlier than there’s even any indication that the corporate has a success on its arms with the Gravity, there could also be an occasion that pushes LCID considerably decrease. Maybe down under the penny inventory threshold (underneath $5 per share). Possibly even to the low single-digits.
So, what is that this potential occasion? That may be yet one more dilutive secondary providing of recent LCID shares. Right here’s why Lucid wants to lift cash once more.
Operating on Low Battery
Relating to this firm and its liquidity, you may say that it’s beginning to run on low battery. As a Searching for Alpha commentator argued just lately, primarily based on 2022 money burn ($4.5 billion), the corporate is prone to run out of money by early 2024 on the newest, citing statements made by CFO Sherry Home.
Sure, Lucid has carried out some aggressive cost-cutting measures in latest months. It’s possible you’ll recall how the corporate introduced that it was shedding 1,300 workers again in March. But whereas this spherical of layoffs is very large, representing 18% of its workforce, it might at finest produce only some hundred million in annualized price financial savings.
Even with plans scaled again, Lucid could possibly be operating dry throughout the subsequent 12 months. To finance the continued buildout of its manufacturing capability, to not point out the launch of the Gravity, the EV maker seemingly wants a number of billion to replenish its coffers.
The excellent news is that Saudi Arabia’s Public Funding Fund, the corporate’s majority proprietor, is probably going prepared to purchase billions extra shares of newly issued LCID inventory. The dangerous information is that promoting extra shares will place additional heavy strain on shares.
The Takeaway
Whereas elevating one other few billion might characterize simply reasonable dilution in comparison with Lucid’s market cap ($13.6 billion), it may nonetheless have an outsized damaging impression on the inventory. The explanations for this are twofold.
First, by elevating the full share rely, this potential dilution would restrict a lot of the attainable upside, within the occasion Lucid lastly scales right into a worthwhile automaker.
Second, the mere act of needing to lift this extra cash, as natural progress is failing to slim losses, might result in a further lower in confidence that Lucid, as soon as thought of a high contender to threaten Tesla’s (NASDAQ:TSLA) dominant place within the EV market, will ever be something greater than an business “additionally ran.”
Weighing the danger of additional heavy dilution in opposition to what proceed to be questionable rebound prospects, no matter the upcoming earnings report, take a tough cross 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 Tips.
