Lucid Group: Buy, Sell, or Hold?

The electric vehicle (EV) market is mature enough to have split into several segments. One of the signature companies occupying the luxury end of said market is Lucid Group (NASDAQ: LCID), whose sleek and future-friendly Air sedan currently retails for a cool $77,400... and that's just for the base model.

Despite some lifts in their share prices recently, EV companies and their stocks have generally been on a rough ride for months now. EV sales growth is dipping, and the Federal Reserve doesn't seem as eager to cut its key interest rate as it once did. Compounding that, Lucid as a company has problems of its own. So, let's evaluate whether the stock is a buy or a bye these days.

The challenges of being a luxury EV maker

Lucid didn't exactly barrel into 2024 on a breezy and confident note. In early January, it divulged its fourth-quarter and full-year 2023 production and delivery figures; these weren't satisfying.

For the year, Lucid produced 8,428 cars. This is well down from the more than 10,000 it originally forecast (although, to be fair, the tally was in line with its revised guidance, issued last November, of 8,000 to 8,500). Deliveries totaled 6,001.

Zeroing in on the fourth quarter alone, the company produced 2,391 of its machines and delivered 1,734 of them. While both represented improvements over the third-quarter numbers, they were down at double-digit percentage rates on a year-over-year basis (by a steep 31% for unit production and roughly 10% for deliveries).

While we continue to enjoy a thriving economy, big-ticket purchases can be a challenge for many. That's because items like high-end cars are typically financed on some kind of credit. The relatively high-interest-rate environment we're in now makes borrowing feel expensive. And when borrowing feels expensive, luxury goods are often the first product category consumers abandon.

Another factor dinging Lucid is the recent rounds of price cuts throughout the EV industry, most famously from sector leader Tesla (NASDAQ: TSLA).

These can really catch a competitor off-guard -- especially one at the pricier end of the spectrum. Lucid management surely felt the pain when Tesla reduced the costs of its luxury Model S sedan late last year (along with the top-shelf Model X SUV, which should compete well against Lucid's upcoming "electric SUV of tomorrow," the Gravity).

Earning less per car is a difficult situation when you're habitually unprofitable. While Lucid managed to narrow its net loss in its third quarter, the nearly $631 million in red ink it spilled was notably deeper on a year-over-year basis (third-quarter 2022 shortfall: $543 million). That $631 million dwarfed the less than $138 million it posted for revenue. The car business is tough and capital-intensive, folks.

Red lights (and red numbers) on the road ahead

Fed officials tend to yo-yo on the future of interest rates, depending on the latest economic data reads. Their most recent pronouncements seem to indicate a reluctance to lower the benchmark federal funds rate in the immediate future.

For an upstart carmaker like Lucid, that would mean a continuation of the pricey credit regime for potential customers and relatively expensive loan facilities should it want to borrow more money to fund operations.

Meanwhile, in this game of follow-the-leader, Tesla might not be done with price cuts. That company's fourth quarter was weak in the minds of many investors and pundits, and the EV business is only getting more competitive.

I think Lucid will really feel the squeeze, and I don't feel that regular profitability is around the corner. Neither do analysts tracking the stock; while they're anticipating improvements over the next two years, their bottom-line estimates are still well in the red (2022's per-share net loss of $1.51 should ease to $1.33 for 2023, then $1.05 in full-year 2024).

Considering both sides, those prognosticators believe annual revenue will more than double from 2023's anticipated tally of almost $624 million to $1.3 billion this year. Personally, I feel that, as a niche manufacturer, Lucid's impressive top-line jumps are a thing of the past. Anyway, even if such a gain is realized, that bothersome minus sign is still likely to appear on the bottom line.

I like Lucid as a company, as its cars have received good reviews, and I tend to root for quality upstarts. It's in a tough spot right now, though, and I'm not convinced there's an easy way to motor out of it. In my mind, Lucid stock is a sell just now.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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