Lucid Group (NASDAQ:LCID) reports its first-quarter results on Thursday. There are two reasons investors should not buy LCID stock before earnings. The one reason is in no way related to the other, but taken together, it should give you pause despite the fact its share price has been on the mend this past week, up more than 5% over the past five trading days.
When I wrote about Lucid in early April, I was enthusiastic about its share price getting a boost from Tesla’s (NASDAQ:TSLA) first-quarter delivery numbers. It didn’t last long, falling more than 20% over the remainder of the month and into May.
Heading into tomorrow’s earnings, I would not be buying.
A Production Cut Will Kill LCID Stock
The last time I wrote about Lucid in mid-April, I was concerned about its class-action lawsuit troubles stemming from the alleged overstatement of its production capabilities. In hindsight, we now know that the 20,000 electric vehicles (EVs) projected for 2022 in its merger presentation were way off the mark.
It now intends to produce 13,000 EVs at the midpoint of its February guidance. As I argued in my article, a second production cut to less than 13,000 in 2022 would devastate LCID stock, sending it into the teens.
It turns out that it’s already there, falling below $18 at the end of April. As I write this, it’s set to open at $19.34.
However, given the April 26 order from the Saudi Arabian government to buy at least 50,000 vehicles over the next 10 years, and possibly as many as 100,000, a production cut announcement tomorrow might not be as devastating as it could have been.
I suspect but have no evidence that the Saudi announcement was rushed to provide damage control for a company whose controlling shareholder (62%) is the Saudi’s Public Investment Fund.
The Second Issue
According to reporting from Bloomberg, Lucid CEO Peter Rawlinson got more than $260 million worth of performance-based awards as part of the board’s March 2021 award of 13.8 million time-based stock over four years. Its proxy values the awards at $556 million.
Please do yourself a favor and check out the Executive Compensation section of its proxy. If you do, you’ll see that Rawlinson earned more than $57 million in 2021 for option exercises and stock vested. That’s in addition to the $556 million in CEO Time-Based restricted stock units (RSUs) and CEO Performance RSUs he got as part of his 2021 total compensation.
Suppose Rawlinson stays at Lucid for the next four years, whether the company becomes a major player. In that case, he could walk away with hundreds of millions, if not billions, from his compensation package.
Should the company report a second production cut, I wonder why PIF would let Rawlinson remain CEO. I guess we’ll see tomorrow. Until then, do not buy LCID stock.
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.