Lucid Group (NASDAQ:LCID) is among the top EV stocks many investors are focused on. The company’s focus on making high-quality EVs is certainly appealing, and is one of the reasons I initially dove into this stock. That said, looking under the hood, there are certain red flags investors should be aware of.
For starters, Lucid’s stock price has been moving in the wrong direction. Year-to-date, LCID stock has declined over 30%. This move has been driven by underperformance on certain key metrics, such as production and deliveries. For high-growth companies, hitting these metrics matters, and is a key reason so many investors remain bearish on the stock.
I think it’s likely to be the case that only a few EV companies survive long-term. Accordingly, with fewer and fewer investors placing their bets on this cash-burning machine, I think it may be time to look elsewhere.
Here are a few other reasons why I remain skeptical of Lucid right now.
Sector-Wide Issues Remain
Broader EV challenges have hit Lucid hard. Thus, there’s really a macro story underpinning Lucid’s recent price action that’s important to take into consideration. Interest rates remain elevated, making car loans more costly and reducing the buyer base for Lucid vehicles. And as inflation eats away at consumers’ pricing power, companies in the higher-end segments of the market could be left behind.
Additionally, sector-wide price cuts have impacted Lucid’s ability to remain profitable. An apparent slowdown in growth in the EV space could mean Lucid is forced to lower prices at some point, or simply see lower demand for its vehicles. Either scenario won’t bode well for the company in its aim to hit production and delivery targets.
Recently, LCID stock hit new lows following lackluster production figures and a recall affecting over 2,000 Lucid Air vehicles. Amid a $752.9 million operating loss in Q3 and challenging demand trends, potential price reductions or sales pressure pose hurdles for the company striving for profitability. Despite a 95% drop from its peak, Lucid stock still trades at a relatively elevated multiple, making this stock highly risky in my view.
Where to Go From Here
Lucid’s focus on the high end of the EV market certainly intrigued me initially. However, for companies to compete with existing “luxury” vehicles in this segment (not going to name names), pricing now matters. That’s not a great thing for an early-stage company potentially looking to finance its growth with higher-priced initial sales.
Accordingly, with demand deteriorating in this space, and the impact of higher rates potentially being felt for longer than initially thought, Lucid is a company I think remains a sell, at least for now. If the company can make some progress on deliveries and production numbers, perhaps the thesis will change. But for now, I think investors are best off steering clear of this stock.
On the date of publication, Chris MacDonald 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.
