Lucid Warning: Why Investors Should Stay Far Away From LCID Stock

  • Lucid’s (LCID) first-quarter data indicates that it’s having difficulty selling its EVs, while the valuation of LCID stock is extremely high.
  • Lucid will be hurt by Tesla’s price cuts and its competition is getting increasingly steep.
  • This leads to a simple conclusion for all investors – that LCID stock is a sell here.
LCID stock - Lucid Warning: Why Investors Should Stay Far Away From LCID Stock

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In this environment, buying any EV stock can be difficult. However, with Lucid (NASDAQ:LCID) having trouble selling its high-end electric vehicles, and LCID stock continuing to trade at a ridiculously high valuation, all investors should sell the automaker’s shares.

Other developments that are likely to make the automaker’s life more difficult are Tesla’s (NASDAQ:TSLA) price cuts and ever-increasing competition.

Here’s why this unprofitable EV stock should be avoided by growth investors right now.

Difficulties Unloading Its EVs

Lucid delivered only 1,406 EVs last quarter, well below analysts’ average estimated 1,835. Moreover, the automaker sold only 61% of the EVs it produced, indicating that the demand for its expensive EVs (the company’s average selling price is $96,000) is relatively low.

Conversely, Tesla (NASDAQ:TSLA) delivered 96% of the EVs that it produced last quarter, and Rivian (NASDAQ:RIVN), another EV start-up, was able to unload 85% of the EVs that it manufactured. So, it’s pretty clear that Lucid, due to the competitive and marketing issues I’ve identified in previous columns, is having great difficulty selling the EVs it manages to produce.

Lucid’s 2023 revenue will likely fall below analysts’ average estimate of  $1.345 billion. Let’s give the automaker an average selling price of $100,000, and multiply that by 5,624 (representing the 1,406 EVs it delivered last quarter duplicated across the following three quarters of the year). We get just $421.8 million. Even if, to account for seasonality issues, we give the company an average of 30% more deliveries in the next three quarters, its total 2023 revenue would come in at $689 million. That amounts to only a little more than 50% of analysts’ average sales estimate.

Tesla’s Price Cuts and Increased Competition

Tesla’s multiple price cuts, and ever-growing competition in the EV sector, aren’t going to make Lucid’s situation any more straightforward, or improve the outlook of LCID stock.

On Apr. 19, Tesla lowered its prices for the sixth time this year. The automaker has reduced the price of its Model Y by 20% so far in 2023. The Model Y Performance, which could appeal to some of the same upper-class consumers as Lucid’s EVs, now costs just $54,000 to $57,000, according to Elektrek. And the automaker’s Model S, which would appeal to many of the same consumers as Lucid, now costs $86,600.

Lucid’s most affordable EV, the Lucid Air, rings the register at $87,000, as of February. Given the price differential and the lack of strength of Lucid’s brand, the automaker will probably continue to have difficulty competing with Tesla’s higher-end EVs going forward.

Meanwhile, higher-end EVs from powerful brands are continuously entering the market, with, for example, General Motors (NYSE:GM) due to step up the production of its Cadillac Lyriq, Volkswagen (OTC:VWAGYintroducing the Id.7 (which got an excellent review recently from Yahoo Finance), and BMW launching its I M70 7 in the second half of this year.

Car and Driver raved about the latter EV’s “immense performance,” calling it an “opulent behemoth” and noting that it can reach 60 miles per hour in just 3.5 seconds. Mercedes, Audi, and Volvo also have new upper-tier EVs coming out this year.

Valuation and the Bottom Line on LCID Stock

If Lucid’s 2023 sales come in at $690 million, which is my best-case scenario, the stock has a forward price-sales ratio of 20-times! Even after backing out the company’s $1.6 billion of net cash as of the end of last quarter, its forward price-sales ratio is still an extraordinarily high 17.5-times.

With Lucid having great difficulties selling its EVs, its already tough competition heating up, no signs of its brand power significantly improving, and it is valuation sky-high, investors should run to the hills when it comes to LCID stock.

As of the date of publication, Larry Ramer owned shares of RIVN. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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