Since mid-May, shares in Lucid Group (NASDAQ:LCID) have found some support from the market. During this time, LCID stock has experienced a double-digit percentage rally, moving from around $7 per share, to around $7.75 per share.
With this slight rally, some investors may now believe shares in this electric vehicle (or EV) stock has finally bottomed-out, and that a recovery is starting to take shape. However, in my view, there’s little out there backing this take.
What’s been driving this rally is small potatoes compared to this fledgling upstart’s many problems. Chances are enthusiasm about these developments will be fleeting.
Worse yet, there’s still much in play that could drive a reversal for LCID following its recent rally, sending shares not only to past price levels, but to even lower prices. With this in mind, take a closer look, and see why it’s still wise to stay away.
Built on Shaky Ground
Lucid Group may be back on an upward trajectory, but it’s not as if there has been substantial positive news out of the company lately. It’s been about three weeks since the last spate of company-specific news, and that news (Lucid’s latest quarterly earnings report) was far from a positive for the stock.
So, if not something major like better-than-expected results, or upward revisions to guidance, what has exactly sparked renewing interest in LCID stock? As mentioned above, chalk it up to recent headlines that are not exactly consequential to the overall story with Lucid.
That is, there’s been some news with an incumbent automaker throwing its hat into the EV ring which is lifting the other “boats” (i.e. other EV stocks), Lucid stock included. In short, this latest rally is built on shaky ground. Forget about LCID climbing higher for much longer.
In fact, as of this writing, this rally appears to be starting to lose momentum. A shift back to a downward trajectory may be next. That’s not to say that this EV stock is primed for a sharp, rapid plunge. However, an extended slide in price could soon kick off. Here’s why.
This EV Contender is Turning into a ‘Never Was’
Back in 2021, investors aggressively bid up LCID stock. Largely, on the view that it was the top candidate to give EV market leader Tesla (NASDAQ:TSLA) a run for its money.
Throughout 2022, the market walked back its expectations for Lucid Group, as the company faced production and sales-related headwinds. Now, in 2023, not only is the view that Lucid is a potential “Tesla killer” is laughable. Hopes that this company will at least become moderately successful are withering away.
Expect this shift, which will end with the budding EV contender getting deemed a “never was,” to continue. As I argued recently, with Lucid’s underwhelming production numbers for the first quarter of 2023 (2,314 vehicles), it’s doubtful the company has the potential to hit its already-lackluster full-year production target (10,000-14,000 vehicles).
Deliveries last quarter came in at only 1,406 vehicles, down more than 27% from the level of deliveries (1,932 vehicles) reported for the quarter preceding it. This sharp drop in sales casts significant doubt that this brand is growing in popularity. If Lucid reports similar numbers in the coming quarters, shares will likely drop to new lows.
Alongside sentiment about Lucid’s prospects, there’s another factor that could hammer LCID lower. It has to do with the EV maker’s high level of cash burn. Last quarter, the company reported negative operating cash flow of over $800 million.
With its cash position totaling $3 billion at present, Lucid may be a few quarters away from running on empty.
Yes, Lucid’s majority owner, Saudi Arabia’s Public Investment Fund (or PIF) still appears willing to provide Lucid more financing as needed, given its role in the oil-rich kingdom’s efforts to diversify its economy.
However, while Lucid may continue to have a deep-pocketed backer in its corner, don’t assume that could potentially save the day for LCID. The dilution from such capital raises stand to knock the stock even lower.
As before, staying away is your best move with LCID stock.
LCID stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.