The remarkable debut of Lucid Group (NASDAQ: LCID) in 2021 sparked widespread enthusiasm, branding it as the “next Tesla (NASDAQ: TSLA).” Promoting itself under the leadership of former Tesla luminary, Peter Rawlinson, and projecting delivery volumes of 20,000 for 2022 and 49,000 for 2023, Lucid’s potential seemed boundless.

But reality presented a starkly different narrative. Lucid’s actual delivery figures stood at a mere 4,369 vehicles in 2022 and 6,001 in 2023. Battling supply chain disruptions, production delays, and product recalls, the company resorted to multiple price reductions to entice buyers. Consequently, Lucid’s stock plummeted by a staggering 80% over the past three tumultuous years.

Given this rollercoaster ride, the pertinent question arises: Is it prudent to buy, sell, or accumulate Lucid’s stock at this juncture?

Image source: Lucid.

The Praises for Buying or Holding Lucid Stock

The optimists backing Lucid highlight its escalating delivery figures, expanding product portfolio, and robust support from Saudi Arabian investors.

Lauded for producing 3,838 vehicles in the first six months of 2024 and targeting 9,000 for the entire year, Lucid currently offers multiple variants of its Air sedan with plans to unveil the Gravity SUV by late 2024. Analysts are optimistic, forecasting a 28% revenue surge to $762 million in 2024, with a colossal 152% leap to $1.9 billion in 2025, propelled by robust SUV sales.

With an enterprise valuation of $9.5 billion, Lucid appears attractively priced at five times next year’s expected sales. In comparison, the less rapidly growing Tesla trades at seven times next year’s anticipated sales.

Lucid’s ambitious agenda includes a tenfold boost in annual production capacity at its AMP-1 plant in Arizona—from 34,000 vehicles to 400,000 in the upcoming four years. Additionally, plans are underway to elevate the annual capacity of its AMP-2 facility in Saudi Arabia from 5,000 to 155,000 vehicles by the “middle of the decade.”

Crucially, the Saudi Arabian government’s enthusiastic patronage, holding more than 60% of outstanding shares via its Public Investment Fund (PIF), bodes well for Lucid. Having bankrolled the construction of AMP-2, the Saudi government intends to procure 100,000 Lucid vehicles over the next decade.

Lucid finished Q2 of 2024 with a solid $4.3 billion in overall liquidity and secured an additional $1.5 billion commitment from a PIF affiliate in early August. The company expects this influx to sustain its operations until “at least the final quarter of 2025.”

Prospects appear promising if Lucid successfully scales up its operations, with analysts envisaging revenue rocketing to $3.6 billion in 2026. This growth trajectory mirrors Tesla’s revenue evolution from $3.2 billion in 2014, skyrocketing an astounding 30-fold to $96.8 billion in 2023. Should Lucid manage even a fraction of this growth, an exponential stock surge beckons over the coming years.

Grumblings Surrounding Selling Lucid Stock

The skeptics remain wary, citing Lucid’s continuous price reductions, substantial financial losses, and heavy reliance on the Saudi Arabian backers. The ongoing price cuts on Lucid’s Air sedans over the past two years, with the entry-level Pure model now priced at about $70,000, form the crux of pessimistic viewpoints. This price point places it below Tesla’s Model X SUV starting at approximately $80,000 but significantly higher than its Model 3 sedan commencing at around $40,000.

While Lucid intended to stand out from Tesla by offering upscale luxury automobiles, recent price slashes, mirroring Tesla’s maneuvers, hint at a struggle to command premium pricing in the luxury EV segment.

Despite ambitious production goals, analysts anticipate Lucid to accrue net losses of $2.9 billion in 2024, $2.5 billion in 2025, and $1.7 billion in 2026. By comparison, Tesla posted a mere net loss of $294 million alongside a $3.2 billion revenue stream in 2014.

If Lucid fails to rein in its losses substantially, the looming specter of cash depletion before attaining economies of scale looms large. In the absence of a solid demonstration of long-term operational viability, the PIF might opt to retreat, minimize losses, and redirect investments toward more promising EV ventures.

Further dampening sentiment are the net selling activities of Lucid insiders over the past year, coupled with a complete absence of insider share purchases in the prior three months. This tepid insider stance underscores the premature stage for betting on Lucid’s resurgence. Moreover, the company’s aggressive share dilution exceeding 40% through secondary offerings and stock-based incentives poses a potential obstacle to sustainable long-term growth.

The Lucid Stock Conundrum: A Time for Action?

While Lucid’s operational landscape shows signs of stabilization, compelling reasons for either purchasing or retaining its stock remain elusive. Consequently, prudence dictates a stance of selling or veering clear of Lucid’s stock until more definitive positive indicators emerge.

Contemplating an Investment in Lucid Group Today

Prior to diving into Lucid Group’s shares, it’s prudent to weigh the following:

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Leo Sun holds no positions in the aforementioned stocks. The Motley Fool retains positions in and endorses Tesla. The Motley Fool adheres to a disclosure policy.

The opinions and views expressed herein belong solely to the author and may not necessarily reflect those of Nasdaq, Inc.