Holders of Lucid Group Stock Ought to Worry About Legal Troubles Brewing


LCID Stock - Holders of Lucid Group Stock Ought to Worry About Legal Troubles Brewing

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An April 19 press release announced a class action lawsuit had been filed against Lucid Group (NASDAQ:LCID). According to the press release, the company is alleged to have overstated its production capabilities while understating its supply chain and logistical challenges it faced. LCID stock gained more than 3% in midday trading despite the potentially bad news. 

The easy thing to do is dismiss this class action lawsuit as an example of ambulance chasing by attorneys. However, it’s hard to argue with some of the allegations made. If you own Lucid stock, you might want to consider what it means for the future of the electric vehicle (EV) maker. 

The strongest argument made by lawyers is that the company’s initial public offering (IPO) projections bear little resemblance to the ones recently trotted out by CEO Peter Rawlinson and the board of directors. Specifically, it intended to produce 577 EVs in 2021, 20,000 in 2022, and 49,000 in 2023. That 2023 figure includes 12,000 for its Project Gravity SUV. 

At the end of February, Lucid admitted that it produced just 400 EVs in the 14 months from January 2021 through the end of February. Further, its 2022 production estimate has been cut to 13,000 at the midpoint of its latest guidance. It said nothing about the 49,000 projected to be built in 2023, and the SUV’s launch has been pushed back to 2024. 

Since Lucid’s Feb. 28 update, Lucid’s share price has lost 35% of its value, so it’s fair to say that the production cut has hurt its reputation with investors. Investors should ask themselves whether this was a good faith estimate revision or another example of a special purpose acquisition company (SPAC) overpromising and under-delivering.

The lawyers behind this class action lawsuit believe it was the latter. 

In my early April article about Lucid, I discussed how the company’s move into the Canadian market should be good for its future sales numbers. This lawsuit puts a fine point on the need for Lucid to accelerate its production in the next few months if it wants to meet its revised 35% cut to 2022 estimates.

The risk of owning LCID at this point is that it cuts its 2022 numbers for a second time. If so, LCID stock could fall well into the teens. For this reason, investors rightly should be concerned about its latest legal troubles.       

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/holders-of-lucid-group-lcid-stock-ought-to-worry-about-legal-troubles-brewing/.

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