Electric vehicle startup Lucid Group (NASDAQ:LCID) has seen some wild swings in recent months. Between mid-October and mid-November, LCID stock more than doubled in price before quickly reversing and falling more than 30% into its early December low.
The sell-off included an 18% single-day drop on news the U.S. Securities and Exchange Commission was investigating Lucid’s special purpose acquisition company merger.
Yet, many believe the company is about to become a key contender in the EV race. It has already started mass production, made initial customer deliveries and is expanding its manufacturing plant.
So, as we head into the new year, investors are wondering what’s in store for LCID stock.
EV SPACs Under Pressure
Lucid Group made its public debut in late July via a reverse merger with SPAC Churchill Capital Corp IV. Amid the growing EV hype, the initial public offering raised an impressive $4.4 billion in cash.
However, in recent months, the SEC has been investigating the SPAC mergers of a number of EV companies. In addition to Lucid, other companies caught in the SEC’s crosshairs include Lordstown Motors (NASDAQ:RIDE), Canoo (NASDAQ:GOEV) and Nikola (NASDAQ:NKLA).
As a result, shares of these EV startups have come under pressure in recent weeks. December was also a down month for a number of exchange-traded funds that focus on SPACs. For instance, the Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK) lost about 9% for the month.
Despite the recent slump, LCID stock has returned more than 50% since going public in late July. And the EV market represents a huge growth opportunity.
According to BloombergNEF, the number of EVs sold worldwide this year is expected to nearly double from 2020, hitting a record 6.3 million units. Looking ahead, the Organization of Petroleum Exporting Countries predicted in its 2045 oil outlook that there will be close to 500 million EVs on the road by 2045, accounting for nearly a fifth of the global fleet.
Lucid Faces Several Challenges
LCID reported third-quarter results on Nov 15. Revenue came in at $232,000, down 30.5% from the prior-year quarter, while the net loss totaled $524.4 million. However, the company did end the quarter with a nice cash position of $4.8 billion.
As of mid-November, Lucid had received over 17,000 reservations for its Lucid Air sedan. To meet demand, management is expanding production capacity at its Arizona plant by adding 2.85 million square feet of space. Lucid aims to manufacture 20,000 EVs next year and a total of 90,000 vehicles by the end of 2023, including new models such as its first SUV, the Gravity.
Although investors have been excited about Lucid’s growth prospects, the EV space is highly competitive. In addition to EV darlings like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), legacy automakers such as Ford Motor (NYSE:F) and General Motors (NYSE:GM) are making significant inroads in the EV space.
Given the recent SEC investigation, as well as the lack of a clear path to profitability, Lucid faces several challenges. The transition period from prototypes to commercial production is typically rife with risks, which could lead to volatility in LCID stock.
Thus, a pullback toward $35 or even below could make a better entry point for growth investors.
2 Alternative Ways to Invest in LCID Stock
For investors who are interested in LCID stock but looking for a way to reduce risk, allow me to pose two alternative strategies.
First, there are a number of ETFs that provide exposure to LCID stock, including the iShares MSCI USA Size Factor ETF (NYSEARCA:SIZE), VanEck Low Carbon Energy ETF (NYSEARCA:SMOG) and Vanguard Mid-Cap Value Index Fund ETF Shares (NYSEARCA:VOE).
Those readers who are experienced in options could also consider selling cash-secured puts. This strategy may be appropriate if you are slightly bullish or neutral on LCID stock at this time.
Selling cash-secured put options generates income as the seller receives a premium. As I write, LCID stock is trading around $38.30. If you sold the $38 strike put that expires on Jan. 21, you could collect about $2.65 in premium. Therefore, the maximum return for the seller on the day of expiry would be $265, excluding trading commissions and costs, if the option expires worthless.
If the put option is in the money (meaning LCID stock is lower than the strike price of $38) any time before or at expiration on Jan. 21, this put option can be assigned. The seller would then be obligated to buy 100 shares of LCID stock at the put option strike price of $38 for a total of $3,800 per contract. In that case, the trader ends up owning LCID stock for $35.35 per share, about 8% below the current price.
If the put seller gets assigned shares, the maximum risk is similar to that of stock ownership (the stock could theoretically fall to zero) but partially offset by the premium received ($265).
The Bottom Line on LCID Stock
As I mentioned above, many believe Lucid will become a top contender in the EV race. Its Lucid Air was named the 2022 MotorTrend Car of the Year, an honor bestowed on Tesla’s Model S in 2012.
In another sign that bodes well for the EV maker’s exposure and legitimacy, LCID stock was added to the Nasdaq 100 index on Dec. 13. And the company recently raised $2.6 billion from a “greenshoe option” under the convertible senior notes offering, increasing liquidity.
On the one hand, Lucid has plans for a broad product range from luxury SUVs to cheaper EVs and the cash buffer to carry out those plans. On the other hand, it faces commercial risks such as production delays, semiconductor shortage-related disruptions and slowing economic growth.
Therefore, investors should keep an eye on the sentiment and consider buying LCID stock on a dip or employing an alternative strategy like selling puts or purchasing an ETF to gain exposure to the EV maker.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.