At first, you may think we are particularly harsh on Lucid Group (NASDAQ:LCID), but keep in mind that we are downright bearish on Lucid stock. As discussed in prior coverage, a big reasonreason Lucid is a bad investment has to do with the fact that the stock is caught in a dilution spiral.
However, Lucid’s downward spiral isn’t just limited to the watering-down of LCID’s value through the issuance and sale of new shares. Sure, recent fiscal results show that sales growth has resumed. Even so, it’s unclear how long this growth resurgence can last. At least, considering the other variables that are contracting rather than expanding.
Lucid Stock: ‘Meme Mania’ Hasn’t Changed the Situation
As you may recall, Lucid was one of many stocks that partially benefited from last month’s short-lived spurt of “meme mania,” driven by the return of famed meme stock investor Keith “Roaring Kitty” Gill to social media. LCID didn’t “go to the moon” by any stretch, but the trend resultedresulted in the stock re-hitting $3 per share once again.
In the weeks since, however, Lucid stock has given back these gains. “Meme mania” clearly hasn’t changed the situation. Investors have again shifted towards pricing LCID based on fundamentals, which for this company is of course not a positive.
Although the EV maker has managed to begin reversing delivery and sales volume declines, other big issues persist.
Namely, significant cash burn. Last quarter, the company reported negative operating cash flow of $516.7 million. Sure, with around $4 billion in cash on hand, Lucid for now can absorb these losses. Even so, don’t expect shares to hang tight at current levels, before beginning to surge back once again.
Why? It all has to do with the other areas in which things are contracting for Lucid Group. Those would be in its employee count, as well as in electric vehicle demand.
Major Disappointment
There hasn’t been a lot of big news lately about Lucid stock, with the exception of the company’s recently announced layoff plans. In late May, the EV maker announced a 6% reduction in its workforce. Cost-cutting may be a positive development for a mature, already-profitable firm, but for an upstart like Lucid?
Layoffs can produce more harm than good. As we argued shortly after the latest layoff news, these layoffs entail high upfront costs, and a questionable payoff. Mainly, because a smaller workforce could make it difficult for Lucid to scale up production, not to mention kick off the launch of its Gravity electric SUV model.
In the event Lucid experiences further production hiccups, this could limit the company’s ability to produce improved results in the coming quarters. If that’s not bad enough, consider the other area of contraction: consumer demand for luxury EVs.
With the exception of one outlier, premium EV sales are currently declining, including for the market leader. Put it all together, and it’s clear that the ingredients are in place, not for a rebound, but for further disappointment ahead. In turn, driving LCID’s next big drop.
Bottom Line: Sell Before the Next Price Contraction
Taking into account workforce and demand contraction, here’s how the next big price contraction for Lucid could play out. First, these factors prevent the company from producing stronger results next quarter, the quarter after that, with poor performance persisting into 2025.
That means heavy cash burn continues unabated. In turn, this exhausts Lucid’s cash position, forcing the company to tap into funding from its deep-pocketed backers.
Assuming PIF is even interested in further financing this so-far failure of an EV startup, this additional round of shareholder dilution, coupled with the continued disappointing fiscal results, could push LCID down below $2 per share, maybe even below $1 per share.
Hence, ahead of the next big price contraction, sell any existing Lucid stock positions.
Lucid stock earns an F 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.