Lucid Group (NASDAQ: LCID) has garnered a reputation for producing some of the world’s top-performing electric vehicles (EVs), according to trusted industry sources. However, the company’s stock has experienced a significant downturn, plummeting about 94% since its peak following a merger with a special purpose acquisition company in July 2021. As the company prepares to release its fourth-quarter results, investors are left wondering whether the time is ripe to capitalize on this battered EV stock.
Image source: Lucid.
Long Road to Recovery for Lucid
The impending Q4 report is expected to shed light on Lucid’s revenue, net loss, and provide guidance on vehicle production and deliveries. However, the revealed figures for the number of vehicles produced and delivered in 2023 fell short of expectations. With only 8,428 vehicles produced (below the previously guided range of 10,000-14,000 units) and 6,001 delivered, the company’s performance has left much to be desired.
These disappointing numbers, indicating meager growth in production and delivery, hint at potential production constraints or inventory management issues. This stagnation has further pushed back the attainment of economies of scale necessary for profitability, aligning with wider trends impacting the EV industry.
Industry Dynamics Pose Threats
Lucid’s short-term prospects appear marred by significant industry headwinds. While the overall EV market holds promise for growth, the pace of adoption is potentially slower than initially expected. With the necessity to scale production and sustain pricing power, current industry dynamics present substantial challenges for Lucid.
Worsening matters, the company’s third round of price cuts in seven months reflects the intense competition and pricing pressures, with major players like Tesla, General Motors, and Ford Motor Company pursuing similar strategies. Although the upcoming release of the Gravity SUV and pricing adjustments aim to revitalize production and demand, Lucid remains distant from achieving profitability.
Is Lucid a Contrarian Buy?
The assessment by Morgan Stanley analyst Adam Jonas indicates that the predominantly negative news surrounding Lucid has already been factored into the stock price. Notably, Jonas maintains an underweight rating on the stock, suggesting caution for potential investors.
Moreover, with the expectation of substantial losses in the upcoming fourth-quarter financial report and minimal financial reserves relative to the mounting losses, the prospect of stock dilution poses a significant risk. While the stock might witness a surge in momentum, fundamental weaknesses and ownership structures advocate for a prudent approach for investors with lower risk tolerance.
Before making an investment in Lucid Group, It’s wise to consider the following:
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