Lucid Group (NASDAQ:LCID) stock once traded as high as $57, but it has been struggling for some time. It trades today at something closer to $22.
There are several reasons for the dip and I think the stock will continue the downward journey in the short term.
If you are waiting to add the EV stock to your portfolio, wait for it to fall further before you take a position.
The Russia Ukraine war has led to an oil battle and this is where EV stocks are suffering. Although rising gas prices should be a positive catalyst, EV makers did not have a great start to the year. Rising competition and supply-chain delays have hampered production for Lucid.
Missed Production Targets
In the February data release, Lucid announced that customer reservations exceeded 25,000 and production surpassed 400 units for the month.
However, it has reported deliveries to only 125 customers as of year-end 2021 and just more than 300 deliveries to date. This means the company currently only has 125 customers who have purchased their EV.
Lucid had expected to deliver 20,000 Air sedans this year but the latest guidance has lower projections. It now plans for a production in the range of 12,000 to 14,000 vehicles in the year which is a significant decline from the projected numbers.
I had earlier written about LCID stock performing well only if the company managed to stick to the production timeline. I said at the time that it did not look realistic and that was before supply-chain issues came to the fore.
The new production target may be more realistic now, but considering the number of deliveries by rival EV makers, this looks like a small number.
Lucid may have thousands of reservations but we will only know the true potential of the company if it meets the projected numbers. If the company fails to meet the production target, we could see another decline in LCID stock.
The Market Cap Is Too High
Lucid Group has a market cap of $37.89 billion and the stock is trading at just below $22. Rival XPeng (NYSE:XPEV) has a market cap of $19.62 billion and the stock is trading at the same level.
Despite catering to different audiences, Lucid is trading at the same level though XPeng has delivered more than 140,000 EVs year to date.
NIO (NYSE:NIO) has a market cap of $25.56 billion and the stock is trading at $16 and has delivered more than 170,000 cars year to date. Nio already has clear results, Lucid doesn’t. There’s no good reason Lucid is worth $11 billion more than Nio. This suggests that people are simply betting on the potential of the company.
The common argument seems to be that this valuation is based on the company catering to the luxury car market, making it more profitable. Of course, it will only be profitable if it can ramp up production.
One may also argue that the company is taking only as many orders as it can fulfill in the next few years. They further may argue that Lucid is currently in the growth stage and until the company delivers a few cars, it will be hard to predict what the future will look like.
I find these objections unconvincing.
The competition in the EV industry is only growing and if Lucid fails to meet the production targets, it may end up losing customers to competitors.
The Bottom Line on LCID Stock
Lucid may seem like a good long-term play but it is not a buy at current levels. Wait for the stock to fall further before you invest.
Anything below $20 seems like a good entry point. We might not see any upside immediately but there is a chance for the stock to rebound once the market improves.
In my opinion, the stock looks fairly overvalued, and now is not a good time to buy.
On the date of publication, Vandita Jadeja 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.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.