LCID Still Has More Downside Left

First, let me say that I’m impressed by Lucid Group’s (NASDAQ:LCID) car. This company has a real shot at making it in the frothy electric vehicle wars going on right now. So LCID stock has potential but it will likely be a bumpy road.

Exterior of Lucid Motors (LCID) building
Source: gg5795 /

This is the first wave of EV companies to hit the market and there are a number of different strategies companies are using to enter into the market. For now it seems that whether high-end or low-end, the rifle approach is much more practical – and successful – than the shotgun approach.

LCID stock has been hammered in the past few months, as have many of these high-flyers. The market is shifting from a low-growth, low-interest rate environment to a high-growth, high-inflation environment.

What’s more, the Federal Reserve and other central banks are also backing off their heavy-handed policies to support their respective economies since the financial debacle that culminated with the 2008 market crash.

We have been cruising along in this quiet world for over a decade. And we’re hitting rough water again. Remember, market forces aren’t always gentle and as central banks walk away. And there are a lot of investors that don’t even remember what the world was like before 2008.

LCID Stock Has a Plan

What that has meant for stocks like LCID is that the big money isn’t just buying and hoping.

Now the big money is buying what performs and has the growth and earnings to back it up. That’s bad news for sectors like EVs.

Right now, LCID stock has a market capitalization of $45 billion. That’s about the same as companies like Prudential (NYSE:PRU) and Dell (NYSE:DELL). Their valuations match their earnings. LCID stock’s valuations don’t.

The one thing LCID has is a plan, however. With its deep-pocketed Saudi investors, and their desire to “go green” by investing in a LCID production facility in The Kingdom, this will help LCID manage these vulnerable growth years.

EVs Making Moves on Dealership Model

Another macro plus for the company is the continued pressure new EV car companies are putting on the dealership model in the US.

Tesla (NASDAQ:TSLA) led this challenge by moving to a direct to consumer (D2C) model with its cars. And you see the same happening with digital used car dealerships like Carvana (NYSE:CVNA) or Vroom (NASDAQ:VRM), among others.

The current U.S. dealership model was set up decades ago and creates a high barrier to entry for new carmakers. But EV companies have banded together to start tearing down those antiquated barriers one state at a time.

This is great news for LCID as well.

And Then There’s ESG Investing

Another good omen for LCID stock is the fact that its seems in all the market turnover, environmental, social and corporate governance (ESG) investing is coming back in vogue.

It’s my guess it’s back in vogue because a lot of institutional investors have far too many hipster start-ups and cool tech firms in their portfolios that they don’t want to walk away from completely.

This would certainly include the EV market sector, with its collection of companies that are just on the edge of industry-changing growth… but not quite there yet. Alternative energy and space companies are also on this list.

So LCID stock has some potential. But its market cap still seems ridiculously high, albeit with some justification in the years ahead.

If you have some risk capital and a long time horizon, it may be worth a small position here, but I still think we’re not done with the selling. If you have more time than money, patience is still your best bet.

On the date of publication, GS Early 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 Publishing Guidelines.

GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time.

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