Risky Luxury EV Maker Lucid Still Faces an Array of Tough Challenges

Lucid (NASDAQ:LCID) and LCID stock are facing very difficult challenges over both the short-term and the long-term. Unfortunately fans of LCID stock, there are much better stocks to buy in the electric-vehicle space.

The Lucid Motors (LCID) Plant in Arizona.
Source: Around the World Photos / Shutterstock.com

Lucid’s Short-Term Challenges

LCID stock has generally underperformed the EV sector since it underwent a large lockup expiration on Jan. 19. A lockup expiration allows company insiders and other early holders of firms’ shares to sell their stock for the first time.

Over the five trading days that ended during early trading on Feb. 1, for example, Lucid’s shares had fallen 17.7%, while Rivian had climbed 6% and Arrival had risen 10%. The lockup expiration could very well continue to weigh on Lucid’s shares for the next few weeks.

Meanwhile, my research continues to indicate that the mainstream media’s coverage of Lucid still significantly trails that of Rivian (NASDAQ:RIVN) and, of course, Tesla (NASDAQ:TSLA).

My search for “Lucid” in Google’s News section on Feb. 1 turned up just three mainstream news articles, i.e. articles in publications that are not exclusively dedicated to coverage of automobiles or business. Conversely, a search for Rivian with the same criteria revealed nine mainstream news articles, while Tesla came in at ten such articles.

With Lucid facing a great deal of competition (I will discuss that issue much more extensively below) and currently getting much less free publicity than a number of its rivals, it could have difficulty meeting the market’s expectations when it comes to EV orders, sales and revenue.

Finally, Lucid reported its third-quarter earningss on Nov. 15. Consequently, there’s a good chance the company will report its Q4 results roughly three months after that date, meaning sometime in February. If the automaker’s orders, production and/or revenue results fail to meet expectations, LCID stock could easily crash.

The shares are particularly vulnerable to a sharp downturn because even after their recent, major pullback they still have a very large market capitalization of nearly $49 billion.

Longer-Term Issues

As I noted previously Lucid, which is focusing on the high end of the consumer EV market, faces a huge amount of competition. Of course, Tesla has multiple EVs for high-end consumers. But Volkswagen (OTC:VWAGY) is starting production of its ID.5 “SUV coupe,” while GM’s (NYSE:GM) Cadillac Lyriq, a luxury SUV, is on the way and recently sold out in just 19 minutes. Not to be left out, BMW (OTC:BMWYY) is launching its “first-ever all-electric Gran Coupe.”

With all of these luxury EVs, plus many more rolling in, Lucid is really going to have its work cut out for it over the longer term, particularly if it fails to generate more coverage in the mainstream media for itself and its EVs.

After all, Lucid is way behind Tesla and most longtime automakers when it comes to brand recognition and marketing spend. So without a great deal of mainstream media coverage, it may very well have difficulty even getting very many early adopters to buy its EVs instead of those of its competitors.

Given the still-huge valuation of LCID stock, the shares have a long way to tumble.

Two Much Better Picks

Xpeng (NYSE:XPEV) is a Chinese EV automaker that has proven itself able to sell a high number of automobiles in its gigantic home market. In fact in December, deliveries soared 115% YOY to 12,922 EVs and the company has delivered more than 150,000 EVs in total.

As I’ve pointed out in previous columns, Xpeng’s advanced driver assistance systems (ADAS) are ahead of its peers and selling prices are relatively affordable. Moreover, the automaker is in the process of entering Europe and its $31.4 billion market capitalization is well below that of LCID stock.

Focusing on the commercial EV market which is much less competitive than the consumer space, Arrival is collaborating with Uber (NYSE:UBER) and UPS (NYSE:UPS) on new EVs. What’s more, the company has said that it can produce commercial EVs at roughly the same cost as conventional commercial vehicles.

Amid fears around Russia-Ukraine tension (Arrival’s founder is a former Russian government official who lives in the U.K.) and higher interest rates ARVL stock has gotten crushed in the last few months. But those fears appear to be — correctly, in my view — rapidly receding recently. As of late morning trading on Feb. 1, ARVL stock had jumped 20% over the last five trading days.

With a market capitalization of $2.7 billion, Arrival’s valuation is a small fraction of that of LCID stock.

The Bottom Line on LCID Stock

With Lucid facing very difficult short-term and long-term issues, the shares are very risky at this point. Making the shares even more dangerous, they trade at a very high valuation.

Given these points, I continue to believe that the risk-reward ratio of the shares is negative and I still urge investors to sell the stock.

For now, ARVL stock and XPEV stock are much better investments than Lucid’s shares.

On the date of publication, Larry Ramer held long positions in ARVL stock and XPEV stock. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Plug Power, Roku and Snap. You can reach him on Stocktwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.


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