Lucid Motors (NASDAQ:LCID) stock continues to see its stock price drop in December.
On Nov. 29, 2021, LCID stock closed at $55.06. However, at the close of markets on Dec. 15 with a price of $40.81, the stock is down around 25%.
The reason for investor dismay is that Lucid was issued a subpoena from the U.S. Securities and Exchange Commission (SEC) regarding activity surrounding how it went public.
As investors remember, Lucid went public via the special purpose acquisition company (SPAC) Churchill Capital Group IV.
The electric vehicle (EV) bubble that popped early in 2021 has begun to inflate again. So, even after the sell-off, LCID stock is riding a wave that is lifting all EV stocks.
However, I view this as one of those times where if you’re bullish or bearish on LCID stock, you may be right.
The Bullish Case
The recent highs were linked to a significant accomplishment. The company delivered its first Lucid Air Dream Edition vehicles in California.
This is no small achievement. If the company had missed the launch date, it would certainly have had a negative impact on LCID stock.
Plus, the Lucid Air got a significant endorsement when it was named MotorTrend’s Car of the Year for 2022. The company stated that this was the first time an initial product from a new brand had won this prestigious award.
While the Lucid Air is a luxury EV with a premium price tag, this is the segment of the market that is likely to be buying EVs at the moment. The fact that the company has models that directly compete with Tesla (NASDAQ:TSLA) is a net positive for the sector.
Adding to the bullish case, the company is well-capitalized for the moment. With $4.8 billion on the balance sheet, the company said it is financed through 2022.
The Bearish Case
I don’t know if anything of substance will come of the SEC investigation. But to be fair, LCID stock was giving off a bearish “double top” technical signal prior to the SEC’s announcement.
This selloff could be part of a normal corrective event for the stock. It was ripe for a little profit-taking. With that said, Lucid Motors still has a market capitalization of $68.36 billion. That’s down from the $87.2 billion it was at not too long ago, but it still is trading at a price that has even the most optimistic growth projections factored in … and then some.
I also think it’s fair to note that the company is pledging to begin production of its lower-end Lucid Air Touring and Pure models in 2022.
It plans to move into production for its electric SUV, Gravity, in 2023.
At the same time, on its last earnings call, Peter Rawlinson, chief executive officer and chief technology officer, made it clear that, for now, the company will scaling up production for the Lucid Air Dream. He stated: “we’ll need to create a technological tour de force, and I think that’s what we’ve got in Lucid Air. We define our brand, we define our future.”
Aside from potentially biting off more than it can chew, the company is forecasting manufacturing 90,000 vehicles by 2023. That seems a little underwhelming, but it could also be a case of under-promising.
Although the company has said it’s well-capitalized, InvestorPlace writer David Moadel points out that the company admits to having an accumulated deficit of $5 billion as of Sept. 30. That deficit will only be getting larger as it scales production at its Arizona manufacturing plant and builds out its sales and service network.
The Bottom Line on LCID Stock
I believe LCID stock is still overvalued, but what I believe is unimportant. Institutional ownership remains very low so retail investors are driving the growth in the stock price.
In 2021, that’s not unusual, nor is it necessarily bad. But it does mean that it’s likely that Lucid Motors will remain volatile.
What concerns me more than valuation at the moment is the supply chain disruption, which the company acknowledged is still a variable that is difficult to account for.
I made a similar argument when I last wrote about LCID stock in September. At that time, the stock was trading for less than half of its current price.
If you’re not currently invested in LCID stock, it may be best to wait until the dust settles. The stock may have further to drop. If you’re currently holding the stock, I’d take David Moadel’s advice and pick a price target to make opportunistic buys. The lower the better.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
