For folks who want a chance to buy the next famous electric vehicle (EV) manufacturer, Lucid Group (NASDAQ:LCID) offers the prospect of long-term wealth for early investors. However, LCID stock is quite volatile, so opportunists must choose their entry points carefully.
Since we’re not seeing a lot of Lucid Air vehicles on the roadways yet — the first confirmed deliveries of Lucid’s luxury sedan were released not long ago — this is definitely a speculative investment. With Lucid, you’re not expecting profitability today, but only hoping for results in the future.
The problem is, some folks are probably buying up shares of LCID stock without carefully assessing Lucid’s financial situation. Also, traders may be purchasing the stock without checking the technical levels first.
So, whether you invest based on fundamentals or technicals or both, there’s a lot to consider when it comes to Lucid Group. Staying informed — and staying small in your position size — will be the key to success as a long-term shareholder.
A Closer Look at LCID Stock
As you may be aware, Lucid Group doesn’t have a lengthy history as a publicly traded company. Going back to the beginning, on July 26, 2021, a special purpose acquisition company (SPAC) known as Churchill Capital IV merged with Lucid Motors.
As a result, Churchill’s shares were replaced with LCID stock, which closed at $26.83 on its first day of public trading. That represented a very quick 11% gain, but also a very important technical level to watch.
Apparently, $26 is like a magnet for people and institutions that trade Lucid shares. From July through October, the stock wiggled and wobbled but kept coming back to that magic number.
Then, LCID stock shot up like a rocket in November, hitting $55 on three separate occasions before pulling back each time.
Now, I’m not suggesting that prospective investors have to sit around and wait for the Lucid share price to fall all the way down to $26. It is possible, however, to utilize a strategy of averaging down. For example, you could choose to buy a few shares at $40, $30 and then the mid-$20s.
Waiting for Profitability
If you buy LCID stock at a lower price, then at least you’ve reduced your risk somewhat. And there is definitely risk there — just check Lucid Group’s financials and you’ll see what I’m talking about.
In a recent 10-Q form, the company reported a net loss of roughly $408.1 million during 2020’s first nine months. That figure ballooned to a net loss of around $1.5 billion in this year’s first nine months.
Furthermore, Lucid Group admitted that it has an accumulated deficit of $5 billion as of Sept. 30, 2021. As Lucid builds out its Arizona manufacturing plant and its network of retail sales and service locations, these activities will require capital which the company simply doesn’t seem to possess.
Expect Substantial Losses
Thus, Lucid Group is continuing to spend large amounts of money to develop its business as an ambitious EV maker. Cautious investors should see this as a problem.
Lucid’s prospectus supplement outlines some of the fiscal risks that the company, and therefore Lucid’s stakeholders, will need to accept.
I already cited the company’s accumulated deficit. Lucid expects to continue to “incur substantial losses and increasing expenses in the foreseeable future,” thereby likely adding to this deficit.
At this point, some shareholders might argue that Lucid should be able to reduce its financial deficit. They may cite the large number of reservations for the Lucid Air. As of Sept. 30, 2021, the company reported having received reservations for more than 13,000 Lucid Air units.
Those reservations came with fully refundable deposits. By Lucid’s own admission, the customers “may cancel their reservations without penalty and for any reason until they place an order for their vehicle.” Hence, reservations aren’t the same thing as sales — an important distinction to make.
The Bottom Line
Wagering on Lucid Group’s success will require patience and a lengthy timeline. The company is still working towards profitability, and that could take a while.
In the meantime, feel free to carefully pick your potential purchase levels for LCID stock. The lower you end up buying it, the better.
On the date of publication, David Moadel 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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.