Fans of Lucid (NASDAQ:LCID) are enjoying a day in the green after last week’s volatile price action. To put last week into perspective, shares of LCID stock are still down 20% over the past five trading days despite a 6% gain today. However, it seems that Lucid’s recent price performance is due to a market-wide decline instead of company-specific factors.
Why Is LCID Stock Trading Higher Today?
2022 has been rocky for Lucid, but investors are being reassured by today’s gains. Additionally, the Nasdaq 100 is up over 2% today, bringing up many names in the technology sector along with it. Nonetheless, the Nasdaq 100 is still on pace to have its worst month since October 2008. Overall, the Nasdaq 100 is down over 10% this January.
However, JC O’Hara of MKM Partners still believes that there’s a 30% chance the market could drop even more. As O’Hara explained, “We continue to believe the economic conditions are favorable and the recent weakness is not a systematic problem, but rather a valuation reset due to the swift change with investors’ expectations for the future path of rates.”
A valuation reset is exactly what has been hurting Lucid. Shares of LCID stock are down more than 25% since the year began as investors prepare for an interest rate hike. However, Lucid has not reported any company-specific news that could pinpoint this drop. Moreover, the theme in 2022 so far has been an escape from long-duration names into companies that currently generate healthy amounts of cash flow. Lucid certainly fits into the category of long-duration names.
The Bottom Line on Lucid
After completing a $2 billion convertible senior notes offering, Lucid now has approximately $6 billion of cash on hand. That cash figure places Lucid in a great position to further expand manufacturing and production in the coming year. The electric vehicle (EV) maker also has plans to expand to China in 2023, which has the highest EV adoption rate in the world.
In spite of that, ramping up production remains a key risk for Lucid shareholders. Any delay in Lucid’s timeline could negatively impact shares. Furthermore, ramping up production is a costly expense and could hurt shares in the near term as well.
Lucid is currently in the process of expanding its AMP-1 factory in Arizona. The expansion will add 2.85 million square feet of production capacity. Furthermore, the expanded AMP-1 factory is expected to produce up to 90,000 vehicles per year by the end of 2023. For context, the AMP-1 currently has the capacity to produce 34,000 vehicles per year.
On the date of publication, Eddie Pan did not hold (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.
