Lucid (NASDAQ:LCID) stock has had a long bumpy ride. Investors eagerly bought LCID shares after its 2021 IPO, raising $4.5 billion for Lucid. Lucid’s Saudi backers provided capital during tough times. However, the new EV maker is far from dethroning Tesla (NASDAQ:TSLA) or even China’s BYD (OTCMKTS:BYDDY). In Q4 2023, BYD sold 526,409 electric vehicles, while Tesla sold 484,507.
BYD’s sales are still increasing despite an EV slowdown. In January, the company sold 205,588 electric vehicles. Tesla finds itself in a similar, situation, while growth has slowed, there is no debate about which brands are amongst those dominating. Lucid will struggle to gain market share. I have written bearish articles on Lucid in the past, and my conviction has yet to waver. Here are 3 reasons to dump your LCID shares and never look back.
The EV Market Slump and LCID Stock
The EV market has been undergoing a rapid transformation in recent years as more automakers enter the fray with new models and technologies. However, there are new concerns that demand will weaken in the near and medium term as high-interest rates continue to bite at consumer spending.
In this context, investors should be wary of Lucid, a luxury EV maker that faces several challenges in its quest to become profitable and competitive.
Larger EV makers, including General Motors (NYSE:GM) and Tesla have signaled warnings regarding the broader market’s prospects in 2024. GM has cut production targets, and Tesla, in their Q4 earnings print, warned of a steep slowdown in in 2024 total sales.
Going to back to my comment interest rates, this is a significant determinant of car sales. Consumers, especially in the United States, tend to acquire car loans for the purpose of purchasing vehicles.
Car notes have not only become expensive, due to elevated interest rates, but car insurance has also become expensive. Larger players may be able to weather the storm, but smaller, niche players like Lucid are likely to perform poorly.
LCID’s Leaves a lot to be Desired
In the fourth quarter of 2023, Lucid’s deliveries left much to be desired. The company reported it had delivered 1734 vehicles, down 10% from the same quarter in the prior year. Full-year deliveries rose by 34%, but Q4 slowdown warns of future quarters. The demand in the market just doesn’t seem to be there.
The luxury EV maker’s production guidance for 2024 was 9000 vehicles, but this is barely a 7% increase on a year-over-year basis from 2023. Slower production implies delivery growth will also stall. This begs the question, when will Lucid stop being a total cash vacuum.
While the company has $3.9 billion in cash and cash equivalents, as of its latest balance sheet, the company also loss $2.8 billion in 2023. It’s difficult to see how this waning demand for EVs will sustain Lucid’s cash burn.
Returns Are Dismal
Now, let’s turn to the company’s share price performance. In 2023, Lucid’s share price fell 38.4%. The current year also hasn’t been kind to Lucid shareholders either. A weakening demand environment and the company’s incessant cash burning has led to an even more precipitous fall in share price value. So far, LCID’s shares have fallen 28.3%.
You might think to yourself, “Well, if I had bought Lucid’s shares 5 years ago, I’d probably be okay, so Lucid’s current performance is most likely related to the current market.” Unfortunately, that’s not even true. On a five-year basis, Lucid’s shares have fallen even more – they’re down 69.5%. Why retail investors would hold a stock with such poor performance given other opportunities in the market is puzzling.
What is not perplexing, however, Lucid has probably been a terrible investment for a lot of current holders, and it’s probably time to move on to greener pastures.
On the date of publication, Tyrik Torres 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.
