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Should You Buy or Sell This EV Stock Near All-Time Lows?

Barchart - Tue Sep 19, 10:07AM CDT

Lucid Motors (LCID) stock is hitting new all-time lows amid the recent correction in growth stocks on fears of a hawkish Fed. LCID is now down over 19% for 2023, and earlier today fell as far south as $5.44 - its lowest intraday level ever. Previously, the stock set an all-time closing low of $5.47 in June, continuing its dismal run from last year - even as fellow electric vehicle (EV) stocks, like Tesla (TSLA) and Xpeng Motors (XPEV), have recouped some of their 2022 losses.

Lucid went public in 2021, during a time of widespread euphoria toward green energy companies. Lucid Motors was the biggest special purpose acquisition company (SPAC) merger until then – before Grab (GRAB) took the honors later that year – and Churchill Capital IV stock soared 550% on rumors that it would merge with Lucid Motors. 

While there was an apparent SPAC bubble in 2021, the stock rising that high on merger rumors showed the market's enthusiasm toward Lucid Motors – which many saw as the “next Tesla.”

Lucid Motors Stock Peaked in November 2021

The EV bubble reached its tipping point in November 2021 when Rivian (RIVN) went public, and soon enough its market cap surpassed $150 billion – which, for context, topped the combined value of Ford (F) and General Motors (GM) at the time. Amid the euphoria, Tesla’s market cap also went past $1.2 trillion, while Lucid Motors’ market cap surpassed $90 billion. 

Fast forward to 2023, and Lucid Motors' market cap is less than $13 billion. Even as the stock trades at a fraction of its all-time highs - and is revisiting all-time low territory - it still might not have bottomed.

Lucid Motors Has a Strong Product Proposition 

To begin with, Lucid Motors is not a “zombie company” like many other EV startups, some of which have already gone bankrupt. The company’s cars have received good reviews; MotorTrend awarded the Car of the Year 2022 award to Lucid Air, saying, “The win affirms Lucid Air as the new EV benchmark, with the most advanced electric powertrain available today — technology wholly designed, developed, and manufactured in-house.”

Luxury carmaker Aston Martin has also partnered with Lucid to buy electric motors and batteries – providing credence to Lucid Motors’ claim that it offers a world-class product.

Also, Lucid has the backing of Saudi Arabia’s sovereign wealth fund, which has poured billions into the loss-making venture – including $1.8 billion in 2023 alone.

Why LCID Could Fall More

However, despite an attractive product proposition and backing from one of the richest sovereign wealth funds, I believe that LCID does not look like a good buy. Here's why.

1. The Macro Environment is Challenging for Automakers

The macro environment is quite challenging for automakers amid high interest rates and a slowing economy. Unprofitable names like Lucid Motors might remain out of favor with investors amid the current environment.

2. The EV Industry is Facing Troubles

The EV industry is facing several headwinds – including slower-than-expected EV adoption, rising competition, and the worsening price war, just to name a few. Also, as legacy automakers ramp up their EV production, the industry is looking quite oversupplied. Even market leader Tesla is no longer the “supply constrained company” it once used to be.

3. Demand for Lucid Cars is Not That Strong

While a lot of automakers have ducked the “demand” question, Lucid Motors was quite candid about the fact that the demand for its cars is lower than its production capacity. CEO Peter Rawlinson attributed it to the lack of brand recognition, but things are not quite that simple, and Lucid has had to offer discounts to spur sales.

4. Lucid Motors Might Need to Raise More Cash

Lucid Motors has been on a cash-raising spree, and raised around $4.5 billion in two tranches since December 2022. Despite having a total liquidity of $6.25 billion at the end of June, it might need even more to fund its cash-burning operations - which would mean even more dilution for investors.

5. LCID Still Looks Overvalued, Despite Trading Near All-Time Lows

While Lucid Motors trades near its all-time lows, it is still not cheap. Its next 12-month (NTM) price-to-sales multiple of 22.2x is way above the comparable ratios for other startup EV peers like Rivian, China-based Xpeng Motors, and NIO (NIO).

Also, while Lucid Motors has so far had a “Saudi backstop,” and there were rumors that the kingdom was looking to acquire the company, the Wall Street Journal reported that the oil-rich country is also in talks with Tesla to set up a plant. Saudi Arabia has already formed a joint venture with Foxconn to produce electric cars.

Another worrying aspect for Lucid investors is its executive compensation, as Rawlinson was the highest-paid CEO of a U.S.-listed automaker in 2022, and received $379 million as total compensation. While the compensation was linked to the market cap milestone that Lucid hit in 2021, the news couldn't come at a worse time, when LCID is hovering around its record lows.

Lucid Motors Stock Forecast

Wall Street analysts are also getting incrementally more bearish on Lucid Motors, and have given it a consensus rating of “Hold” – as compared to “Moderate Buy” 3 months back.

Of the 10 analysts covering LCID, 2 rate it as a Strong Buy and 1 as a Moderate Buy. Five more analysts rate it as a Hold, and 2 as a Strong Sell. And while its mean target price of $7.95 is almost 43% above current levels, I believe the worst is still not over for this struggling EV company, and there's likely more downside ahead.

On the date of publication, Mohit Oberoi had a position in: NIO , XPEV , F , GM . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.