Lucid Motors May Test Investors' Resolve, But Should They Sell?

Key Points

• Lucid Motors stock remains significantly below its 52-week highs as analysts factor in macroeconomic concerns. 
• Consumer demand for electric vehicles is rising, but so are interest rates which will increase the cost of capital. 
• Which comes first, electric vehicle demand or a public charging infrastructure? 
• Investing in LCID stock will require conviction and potentially years of patience. 

Lucid Motors (NASDAQ: LCID) stock is down 62% for the year. And LCID stock is down nearly 75% from its 52-week high set last November. Demand for electric vehicles (EVs) is on the rise. But like many companies in the space, Lucid is finding it hard to meet its production goals. In fact, Lucid lowered its production guidance citing supply chain and logistic issues. The company still expects to produce between 6,000 and 7,000 vehicles. 

Lucid went public via a special purpose acquisition company (SPAC) in 2020. Like many SPAC-related launches, LCID stock got an initial bounce to over $50 a share. The stock fell back but pushed past $50 again in late 2021 on expectations of strong EV demand.  

Those expectations aren’t inaccurate, but macroeconomic realities are weighing on the near-term outlook for all EV companies. If you held LCID stock near its peak, you truly do have diamond hands. This article will attempt to explain if you should continue to hold onto Lucid Motors.  

Pent-Up Demand is a Double-Edged Sword 

Normally, saying that there is pent-up demand for a product or service would be bullish for stocks. And, if you’re bullish on Lucid Motors, that would be one argument I would hang my hat on. OPEC just pledged to cut production by up to 2 million barrels a day. That’s going to send the price of gas higher which makes the case for electric vehicles better than anything else ever could. 

But like many other sectors, electric vehicle manufacturers are dealing with supply chain delays, particularly as they relate to semiconductor chips. The company is also facing inflation-related increases in production costs. And like all EV companies, Lucid is going to find it more expensive to raise capital. 

And raising capital is a near certainty. Per its last earnings report, the company had approximately $4.3 billion in cash with $2 billion in long-term debt. Once again this isn’t a problem that’s unique to Lucid, but it raises concerns about when the company will achieve profitability.  

The Energy Crunch May Cause Infrastructure Delays 

In June 2022, J.D. Power released its U.S. Electric Vehicle Experience Public Charging Study. The results showed that customer satisfaction with public charging stations was declining. This was happening even though the number of available charging stations was increasing. And it’s not surprising to note that the shortage of public charging stations is the primary reason preventing EV adoption and purchase consideration.  

The irony that can’t be lost is that to build this infrastructure will take fossil fuels which are becoming more expensive. What that means for the timing of some of these projects is anyone’s guess.  

The Payoff for LCID Stock Will Take Some Time 

Investing in emerging sectors requires conviction and the willingness to adapt to new information. The world is making a hard pivot towards electric vehicles, and that’s not likely to change course. But as companies like Lucid show, making cars is a capital-intensive business and have comparatively low margins.  

Companies can do everything right and still come up short of the capital they need to become a profitable business. I don’t know if that’s the future that awaits Lucid Motors, but I also don’t know that it’s not. And that has nothing to do with the company’s business plans.  

Lucid was delivering vehicles when other companies were just talking about it. This isn’t a company that’s failing to deliver. And the company is targeting its vehicles at a segment of the population that is likely to be less sensitive to inflationary pressures.  

Most of us investors have one or two stocks that we hold with deep conviction even though the markets say otherwise. And if LCID stock is one of those for you, I’m not here to tell you that it won’t pay off. However, right now the reality of electric vehicles is butting up against the realities of an ailing economy so managing your position size may be an appropriate course of action.