Why Lucid Stock Is a Flat-Tire EV Investment to Avoid

Stocks to sell

Lucid Group (NASDAQ:LCID) has a big backer, maybe too big. Investors must consider worst-case scenarios in start-ups heavily reliant on one stakeholder like Lucid Group. Our due diligence resulted in an “F” grade for Lucid stock, making it not recommended.       

It’s not difficult to find red flags for Lucid Group. The automaker only delivered 6,001 vehicles in 2023 and reported an earnings loss of $654 million in 2023’s fourth quarter. Lucid’s investors cheered recent good news, though it may not be as great as perceived.

Lucid’s Investors Got Head-Faked

When a stock that’s on an overall downtrend gets a quick bump, but then that bump fails to hold, we might call that a head-fake. These head-fakes often catch retail traders off guard and cause them to lose money.

Here’s a textbook example of a head-fake. Lucid stock, which traded at $40 at the start of 2022, is currently worth $2 and change. Suffice it to say, the stock is on an overall downtrend.

There was a brief share-price bump when Lucid Group announced that Ayar Third Investment Company, an affiliate of Saudi Arabia’s Public Investment Fund, agreed to purchase $1 billion worth of Lucid Group preferred shares.

Lucid stock surged 17% on that announcement. However, by April 5, Lucid’s shareholders lost all of those gains and then some.

Sorry to say it, but they got head-faked. As the old Benjamin Graham/Warren Buffett saying goes, the stock market is a voting machine in the short term but a weighing machine in the long run.

Evidently, it didn’t take long for the market’s weighing machine to assess Lucid Group’s future prospects as poor.

Lucid Stock and Concentration Risk

First and foremost, the PIF’s investment doesn’t negate Lucid Group’s major problems. We already mentioned the company’s lackluster EV deliveries and alarming financial loss.

To all of that, we can add Lucid Group CEO Peter Rawlinson’s admission that the automaker has a cash-burn rate of “around $1bn a quarter.” At that rate, the PIF’s $1 billion capital infusion might only provide a three-month lifeline to Lucid.

Rawlinson acknowledged that the PIF’s wealth isn’t a “bottomless pit” for Lucid Group. Plus, there’s an issue that Lucid’s perma-bulls might not have considered.

It’s problematic, when you really think about it, that Lucid Group is so heavily dependent on one shareholder. Believe it or not, the PIF holds a 60% stake in Lucid.

Morgan Stanley analysts warned that eager investors shouldn’t “jump the gun.” We tend to concur, as some people might not see the concentration risk when one entity controls a 60% position in Lucid Group.

What if the PIF decides to sell part or all of its $1 billion stake in Lucid stock? The result probably wouldn’t be a head-fake; more likely, it would be a gut-wrenching sell-off.

Lucid Stock: The Tires Are Flat and the Engine Has Stalled

Lucid Group’s loyal investors celebrated a seemingly positive news item, but the celebration didn’t last very long. The weighing machine started back up again and, unfortunately for Lucid’s shareholders, the mini-rally stalled out.

Throughout all of this, Lucid Group’s serious problems didn’t just evaporate. Hence, it will take more than a big-money investor to put Lucid Group on track to long-term success.

Consequently, we’re giving Lucid stock an “F” grade and we encourage you to seek more favorable stock-picking opportunities.

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.

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