A number of weeks in the past, it appeared as if “meme mania” for Lucid Group (NASDAQ:LCID) was returning for an encore. As I mentioned in my final article on LCID inventory, due to an unconfirmed buyout rumor, shares on this electrical car (or EV) maker made a “to the moon” transfer, to as a lot as $17.81 per share.
Flash ahead to now. Lucid has pulled again, however nonetheless trades above pre-rumor costs. There’s little indication Lucid’s majority shareholder, Saudi Arabia’s Public Funding Fund, or PIF, goes to make a proposal to purchase out the corporate. Even so, some might imagine that the inventory may maintain its present valuation.
Nonetheless, nothing may very well be farther from the reality. With buyout rumors now the rearview mirror, Lucid’s many points, together with a brand new concern, are as soon as once more high of thoughts. Put merely, that’s dangerous information for anybody holding it at this time.
LCID Inventory: Why It’s Finest to Minimize Your Losses Now
There’s one large takeaway in the case of the aforementioned “mania” surrounding a attainable buyout of Lucid Group: shopping for shares on takeover rumors alone will be hazardous to the well being of your portfolio. Buyers who held the inventory previous to this growth had the chance to “promote the rumor,” and take earnings.
However for buyers who “purchased the rumor” with LCID inventory, this hasn’t been the case. Most of those buyers at the moment are underwater on their positions. Worse but, these buyers may find yourself even deeper underwater, in the event that they resolve to not settle for defeat, and lower their losses at this time.
Lucid could also be presently holding regular, creating the phantasm that $10 per share is now the inventory’s new ground. Sadly, there’s nonetheless loads on the market that might not solely sink LCID again to its 52-week low ($6.09 per share) however ship it to new lows as effectively.
Lucid’s longstanding points, similar to manufacturing delays, excessive money burn, and rising competitors stay a problem. Plus, there’s a brand new concern that could be rising: this premium EV maker’s introduced plans to decrease car costs.
Worth Cuts Gained’t Work for Lucid
As you possible know, EV worth cuts at the moment are all the craze throughout the trade. Since Tesla’s (NASDAQ:TSLA) initiation of them in January, incumbent automaker Ford (NYSE:F) has responded with worth cuts for considered one of its EVs (the Mustang Mach-E).
With this, Lucid has hopped on the price-cut bandwagon too. The corporate is now providing a $7,500 “credit score” (a rebate, actually) on a few of its Air Touring and Air Grand Touring fashions.
The jury’s nonetheless out on whether or not worth cuts are a sensible transfer for Tesla and Ford. One can argue that the boosting of demand brought on by decrease costs may outweigh issues such because the impact on margins. Their respective worth cuts may additionally allow extra of their EVs to qualify for the “actual” $7,500 credit score (the brand new U.S. federal EV tax credit score).
Lucid’s worth lower plan, nevertheless, there’s no debate: this transfer is an enormous damaging for LCID inventory. Not solely will barely lowering the worth of its fancier choices (these fashions sport six-figure sticker costs) do a lot to spur demand.
If adopted up with further worth cuts, this newest transfer from the corporate may have a extreme affect on its fiscal efficiency.
Backside Line
Promote-side forecasts name for Lucid Group to proceed to report round $2.3 billion ($1.26 per share) in losses, because it makes an attempt to extend annual deliveries from a couple of thousand final 12 months, to round 24,000 in 2023.
But when the corporate institutes additional price-cutting to fulfill this supply goal, or if, regardless of the extra cuts, fails to fulfill this goal, losses could also be far larger than currently-expected.
Within the occasion Lucid misses on deliveries, or reported greater losses, shares will undoubtedly unload on the information. Increased-than-expected losses may additionally necessitate the necessity to increase extra capital, on phrases dilutive to present shareholders.
If this all performs out, shares may find yourself again within the inventory market junkyard, languishing at penny inventory ranges. Given this excessive draw back danger, there’s just one sensible transfer to make with LCID inventory: promote/keep away from.
LCID inventory earns a D score in Portfolio Grader.
On the date of publication, Louis Navellier had a protracted place in F. Louis Navellier didn’t have (both immediately or not directly) every other positions within the securities talked about on this article.
The InvestorPlace Analysis Workers member primarily answerable for this text didn’t maintain (both immediately or not directly) any positions within the securities talked about on this article.
