Lucid Group Stock Gains Traction, But Its Stock Price Won’t

Key Points

• Lucid Group outperformed on the top line in Q2, but most other details suggest this stock price will hit new lows. 
• The company is well-capitalized but continues to burn cash, and investment from the PIF is diluting value.
• Short interest is still running near 30% and is a deadweight for this market to bear. 

Lucid Group NASDAQ: LCID had a better-than-expected quarter, with production and deliveries rising, revenue outpacing consensus estimates, and the balance sheet capitalized. Still, its stock price is unlikely to move significantly higher. This cash-intensive EV OEM start-up is still burning cash, slowly eating itself to death, and dilution is a significant headwind for shareholders. Additionally, the capital structure, threat of dilution and failure have the short-interest running near 30%, a dead weight for a market to bear. The takeaway is that LCID deserves a spot on a watchlist because it could become a real player in the automotive universe, but now is not the time to buy.

Capitalization, cash burn, and dilution are the most significant factors for investors to be aware of. The company has $4.28 billion in liquidity and announced a new investment by the Saudi Public Investment Fund, but there are still doubts. At the current cash level and burn rate, Lucid has about seven quarters of life left in it, but seven quarters is a long time for investors to wait, and unexpected costs lie around nearly every corner. Meanwhile, the share count is rising, ample shares remain to be sold, and the PIF investment will dilute the value further. As it is, the diluted share count is up 20% in the last year, due largely to PIF investments over the past twelve months and rising. 

Lucid Group Makes Headway With Production and Deliveries 

Lucid Group made headway in Q2, ramping production and deliveries of the Air sequentially and compared to last year. The takeaway is that 2,394 deliveries are still a drop in the bucket compared to what is needed to reach profitability. As it is, the company reported $200.6 million in net revenue for a gain of 33% compared to last year. The revenue outpaced the consensus by 350 basis points, but the strength did not reach the bottom line. 

The company was able to reduce costs and improve margin but missed the consensus with adjusted earnings of $0.29, about 650 basis points shy of expectations. Because the company is targeting a late-2024 start time for Gravity production, investors should expect costs and spending to rise as the year progresses. The company’s loss from operations increased sequentially despite the year-over-year improvement. 

Analyst Lifts Rating for Lucid: It Won’t Lift the Stock Price 

A few analysts have issued updates following Lucid’s Q2 release, including one upgrade. Cantor Fitzgerald upgraded to Hold from Reduce with a price target of $4, but don’t expect it to lift the price action much. The consensus rating and price target are still free-falling compared to the prior expectations. Sentiment is trending at Reduce compared to last year’s Hold, and the price target is down more than 50%. As it is, the consensus target implies a 30% upside, sufficient to keep traders interested but a risky bet for investors, with most targets running from $2 to $3. 

Institutional activity is unlikely to aid the price action either. Institutional holdings run above 60% of the float and have increased in the last year primarily due to the PIF. The PIF owns more than 60% of the company and may hold 100% or close enough by the time this story runs its course. As with Volkswagen’s investment in Rivian, the play for the PIF is more likely focused on Lucid’s technology than its value as an independent EV OEM. Among the highlights from the report is an industry-leading 5 miles of travel per kilowatt hour. Most EVs range near 3.5 miles per kWh. 

The price action post-release is favorable, showing support at the bottom of a trading range. However, the market for LCID remains capped by a cluster of moving averages that include the 30- and 150-day EMAs. With this in play, it is unlikely LCID will move much higher soon. The likely scenario is that LCID stock will trend at the range bottom with a risk of falling to new lows.