Why Lucid Is More Likely to Retreat Rather Than Rally in 2024

Chris MacDonald
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Lucid Group Inc. (NASDAQ:LCID) used to be a top dog in the electric vehicle realm, boasting an impressive market capitalization of more than $90 billion in late-2021. However, like many high-flying EV stocks, LCID stock has been on the decline, losing well over 90% of its value over a little more than two years.

With a market capitalization that’s still above $8 billion, Lucid isn’t a small player in the EV space. In fact, the company has been making and selling some impressive high-end performance EVs to a growing customer base. I’m most impressed by the company’s product specs, which are among the best-in-class in this space.

However, concerns have arisen around not only Lucid’s price point, but its long-term path to profitability. If EV buyers tend to lean more toward the lower end of the price range (given where interest rates are today for car loans), demand could be squeezed, exacerbating existing production issues at the company.

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Here’s more on why I think a continued decline may be more likely than a rally for LCID stock in 2024.

Saudi Investment Not Having Intended Effects

Lucid is an intriguing company in that its business model is more global in nature. The company has taken on investment from Saudi Arabia, in an attempt to supercharge global production at lower costs. However, the company has recently confronted a number of challenges tied to resourcing its existing plants and producing vehicles in its Saudi factory.

The company aims to produce around 500,000 vehicles annually by 2030, but those numbers appear to be increasingly discounted by the market. Lucid has found it difficult to source talent in Saudi Arabia, and a lack of an auto-component supply chain is also creating issues for the company.

Additionally, competition and infrastructure developments will continue to take time to materialize, but these are factors analysts are increasingly pricing into LCID stock.

In September, the EV company launched its first vehicle manufacturing facility, AMP-2, in Suadi Arabia. In its first phase. It could make 5,000 vehicles per year, with a potential capacity of 155,00 once complete. However, AMP-1’s production has decelerated, having assembled fewer than 800 vehicles as of the end of last year.

Slowing Down the EV Race

Scaling up production and aiming to cut losses seem to have been ineffective at improving the company’s overall margins. Lucid continues to face losses, as rivals cut prices, and the company’s input costs remain high. While these issues may get sorted out over time, it’s becoming clear that many investors want to see a much quicker and more visible path to visibility.

While CEO Peter Rawlinson made an interesting announcement of “Project Midsize” to answer the competition, unveiling midsize vehicles may only exacerbate existing production issues. And while the launch of a midsized fleet may be essential for the company long term, many investors are clearly more concerned about near-term cash burn issues, negating any sort of positive value from these announcements.

There Are Better Options Out There

The upside about having many options in the EV space to invest in, like Lucid, is obvious. For investors, being able to bet on certain companies to take market share in key segments is an intriguing strategy, and one that has played out in previous bull markets.

That said, it appears the days of easy money are behind us. Lucid investors are demanding profitability, and soon. In my view, it’s unclear how quickly the company will be able to accomplish positive earnings, even on an adjusted basis, given the high costs of ramping up production.

It’s a chicken-and-egg situation right now for the company, and I don’t know that many investors are going to wait around to see how this plays out. For now, this is a stock I’ll happily watch from the sidelines.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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