Lucid Motors (NASDAQ:LCID) rose 11% on its first trading day following its reverse SPAC merger with Churchill Capital to close at $26.83 on July 26.
Lucid is now trading at $18.69 as of September 2. This means LCID stock has dropped more than 30% from its trading debut close price, which makes me wonder has the excitement in this electric-vehicle startup already vanished?
I’d already written two articles on Lucid before the merger with Churchill Capital and if you happened to read my articles, you should already know two things: I am not a fan of SPACs and I’m not too optimistic about LCID stock.
In one of my previous articles about Lucid, I mentioned that fundamentals haven’t changed about Lucid, questioned its ambition to become a top player in the EV industry, expressed my concern that it is joining the market too late and advised investors to be patient rather than greedy.
In my other Lucid article, I went further, questioning the valuation based on the ambitious projections of future sales. And once again concluded investors should stay away, “based on facts and the fundamentals, not emotions.”
LCID Stock: Why Excitement Has Waned
It has been a tough year for both SPACs and EV stocks. A lot of volatility, plenty of hopes and investing in both FOMO and FUD (fear, uncertainty and doubt) signaled a big distortion in the U.S. stock market. With every major stock index near their all-time highs, it is time to be prudent, conservative and expect all scenarios, whether a continuation of higher highs or an imminent stock market correction.
Should the correction occur, stocks that have risen on hopes and weak fundamentals will be the first ones to take a big hit and Lucid is in this category. Even when it was Churchill Capital and the stock rose from $10 to $60, that surge was simply unsustainable
Call it FOMO, FUD, or whatever fancy acronym you want. I call it two things. A greater fool’s theory game and a return to logic and reality. It is for these reasons that I dislike “meme” stocks. These are games where each trader expects to sell to another trader at a higher price in order to make a profit. These trends rarely last long. And once most traders realize the stock price surge is over, logic appears like Porky the Pig: “that’s all folks!” Game over.
Lucid News Beyond the Lockup
Lucid saw a significant lockup period expiration just this week on September 1. Beyond that, however, recent news shows that Lucid is seriously committed to delivering a product of both luxury and high quality. Updates to make its model move faster and farther, increasing power and performance are naturally positive.
Another factor not to neglect is that Lucid is backed by Saudi Arabia, as reported by Wall Street Journal:
“The single biggest financial beneficiary of the recent U.S. electric-vehicle startup boom is an unlikely candidate: the world’s largest exporter of oil. The kingdom of Saudi Arabia stands to record a profit of nearly $20 billion on a $2.9 billion investment in Lucid Motors.”
This brings me to my next argument. A profit of $20 billion on a $2.9 billion is a great return. But that’s dependent on “smart money,” AKA institutional investors. Not individual investors who bought at different stock prices. If someone bought near the $60 level, then it’s probably best to be realistic, accept the loss and know it will be a bumpy road for LCID to reach those heights again, if ever.
Then we read that the investors who were able to participate in the PIPE deal got the stock at $15. I estimate that these institutional investors may soon start liquidating shares as they have a profit of nearly 45% now. Not bad for a stock that does not move much.
Other Factors Concern Me About LCID Stock As Well
I admit that Elon Mush has a way to surprise us all the time. He recently admitted boldly something negative about Tesla (NASDAQ:TSLA): “Shares of the EV giant made progress despite CEO Elon Musk saying the firm’s current self-driving system is ‘not great.’ He also praised the upcoming next-generation system.”
I am very skeptical about Lucid, as any problem, whether regarding its technology, performance, reliability, or deliveries, is liable to put pressure on its stock price. Competition today in the EV industry is too fierce and will only get more intense, with little to no room for mistakes, underperformance and lack of credibility with consumers.
Lucid hasn’t even started delivering all of its Lucid Air models, yet is already thinking of launching a new model called Gravity in 2023 and another model in 2025. 2025 is the first year of expected positive free cash flow too, according to the Investor Presentation for July 2021.
As a result, I am still very reluctant about LCID stock. Until I see solid financial results I consider it too pricey, too risky and now too overestimated.
On the date of publication, Stavros Georgiadis, CFA did not have (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.