- Investors in Lucid Group (LCID) made no mistake bailing on the popular EV stock following its latest earnings release.
- The electric vehicle startup faces challenges on many fronts, including sinking demand.
- With little end in sight to several key issues, sell before LCID plunges again.
Much as I had anticipated, shares in Lucid Group (NASDAQ: LCID) experienced a sharp drop, after the electric vehicle maker reported its latest quarterly results and updates to guidance on Feb. 22. On the trading day following the earnings release, LCID stock dropped by double-digits.
Shares have stabilized since then. They have coughed back the remainder of their buyout rumor gains from earlier in the month. With this, some may be thinking now is an opportune time to enter a long-term position.
In my view, however, the facts suggest this isn’t the case. Investors made no mistake bailing on the once-hot EV play after earnings. In fact, one can argue that the market has yet to fully price in the prospect of lower-than-expected production and decreased demand.
As these issues are now fully back in the driver’s seat, expect a further move to lower prices.
LCID Stock and its Post-Earnings Drop
Lucid Group was vulnerable going into earnings. With shares being held up by hype (the aforementioned takeover rumors) rather than substance at the time, there was a high chance that any bit of negativity would spark a sell-off.
Unfortunately, there were not one but three negative takeaways from this event, more than enough to justify the post-earnings drop for LCID stock. First, although the EV maker reported a nearly ten-fold jump in revenue for the December quarter, this growth was far less impressive on a sequential, or quarter-over-quarter, basis.
Furthermore, Lucid’s reported 1,932 vehicle deliveries (generating $257.7 million in revenue) fell short of expectations. Second, the company’s 2023 production guidance (10,000-14,000 vehicles) was underwhelming to say the least. Analysts were expecting production guidance of around 20,000 vehicles for the year.
Third, and perhaps most concerning, alongside news of lower-than-expected production, Lucid reported falling deliveries, which may be a sign of softening demand.
Last quarter, reservations totaled 34,000 vehicles. As of Feb. 21, this figure was only 28,000 vehicles. In contrast, Rivian Automotive (NASDAQ: RIVN), for all its faults, has a vehicle reservation backlog totaling 114,000.
Why the Pullback Probably Isn’t Over
For investors who bought into LCID stock at the height of its late January/early February “meme mania,” the past few weeks have been painful. However, there is a strong chance that this pullback is not yet over.
Based on the latest numbers, this once-bright EV contender continues to lose its luster. The company is clearly continuing to experience production hiccups, as evidenced by the walking-back of its ramp-up efforts. Luxury EV buyers are clearly kicking the tires of rival offerings, based on dropping reservation numbers for the Lucid Air sedan.
All of this points to further high cash burn, rather than a gradual narrowing of losses, in the quarters ahead. AsInvestorPlace’s Dana Blankenhorn recently pointed out, Lucid may have $4.9 billion in liquidity on hand, but it is burning through $938 million each quarter.
After raising $1.5 billion just a few months ago, primarily from Saudi Arabia’s Public Investment Fund (or PIF), the company’s largest shareholder, another such capital raise appears very likely, assuming similarly-sized losses are reported for this quarter and the next.
Given the dilutive nature of these capital raises, shares stand to plunge again, if this potential future development becomes a near-certainty.
The Best Move Now With Lucid
Fear, uncertainty and doubt are once again top of mind among investors when it comes to Lucid stock. There is little end in sight to this myriad of issues.
Given how many times Lucid has walked back its production target (at one point, it anticipated producing 50,000 vehicles in 2023), I wouldn’t be surprised if actual production fails to crack even 10,000 vehicles this year.
Dwindling reservation numbers signal a near-zero chance this company ever becomes a serious Tesla (NASDAQ: TSLA) competitor. In fact, rather than being a “Tesla killer,” it may be the other way around, in light of Tesla’s recent vehicle price cuts (including for its luxury models).
Add atop this the rising dilution risk, and it’s clear that LCID stock has rightfully plunged. Before the next round of bad news arrives, it’s best to sell/avoid.
LCID stock earns a D rating in Portfolio Grader.
