Lucid Group (NASDAQ:LCID) stock emerged from its special-purpose acquisition company (SPAC) embryo last July, with initial trades at about $27.50/share. The stock opened March 3 below $23.
It’s been a long, strange trip for the maker of luxury electrics.
Shares peaked at over $55 in November. That was when the Lucid Air was named Motor Trend “Car of the Year.”
It’s a sweet ride, capable of recharging in 20 minutes and then going 450 miles on a charge.
But the company’s valuation never made sense to me. The optimistic take on 2024 sales was $10 billion, but the company was worth $45 billion? (Well, $40 billion now.)
The Reality
The hype around LCID stock is gradually meeting the reality of mass producing cars and the war in Ukraine.
Lucid said it lost $1.04 billion, 64 cents/share, on revenue of $26.4 million for the last three months of 2021. More important, it also dropped its guidance on production for 2022, from 20,000 cars to 12,000-14,000. It said it has 25,000 reservations.
Shares dropped about 10% on the news, but they had been heading straight down since mid-January. Production has also been difficult. About 200 of the first 500 Air sedans produced are being recalled over a mechanical issue. The company claimed only two cars had defective parts, but they all need to be checked.
The “halo effect” of electric car companies coming public through SPACs has turned into a “devil horn effect.” Investigations have revealed issues with most of them. The founder of Nikola (NASDAQ:NKLA) faces a trial on fraud charges in April.
Ford Motor (NYSE:F), which is splitting its electric and gas-powered car divisions, is looking like a better bet, up 29% since the Lucid IPO.
Buy the Dip?
The first thing investors ask in a situation like this is whether they should buy the dip.
I remain skeptical. It’s going to take time for Lucid to grow even into the current valuation. The news on production will keep it down for quite some time.
There remain reasons for hope, as our Ian Bezek wrote shortly before earnings. The company’s management remains respected. There was still $6.2 billion in cash on the books at the end of December. The car is still good. Reservations are still coming in. At the present production pace even Lucid’s 2023 production is now spoken for. Once the war ends, and parts shortages ease, the company should be OK.
Lucid gained important early backing from Saudi Arabia’s Public Investment Fund (PIF). The oil kingdom was promised that the second Lucid factory would be built there. The first is in Arizona. The lock-up on sales from the PIF has expired. So far, most of the Sauds’ money is still in the company. As Blackrock (NYSE:BLK) CEO Larry Fink has said, “the next 1,000 unicorns will be green energy companies.”
The Bottom Line
If you’re already in Lucid stock, prepare to wait for any profit. Production must increase, the whole decade needs to be restarted for progress to be possible.
If you’re not in LCID stock, you don’t have to rush. There are a lot of great tech stocks on sale right now, companies that will deliver economic efficiency and profitable growth before Lucid does.
But make no mistake. The era of electric cars is coming. My personal belief is that luxury electrics, like the Lucid Air, are niche products. The big profits will eventually be found in smaller, mass market cars.
But Lucid will have a place. The question is how big of a place.
On the date of publication, Dana Blankenhorn held a long position in BLK. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.
