Is Lucid Group the Next Tesla? The Stock Chart Begs to Differ.

Stock Market

Lucid Group (NASDAQ:LCID) is certainly one EV stock with plenty of growth potential.

Investors who have held this stock have likely done so based on the company becoming the next Tesla (NASDAQ:TSLA) in the premium end of the EV market. 

That’s certainly an intriguing thesis. However, Lucid’s stock chart tells a different story. Now down more than 90% from its 2021 peak, the EV stock has seen its valuation shrink along with this growth expectations.

Still, this is a $12 billion behemoth in the sector, and one which holds plenty of potential in its core market.

The question is whether, even at these lower levels, Lucid is worth a bet. I’m of the view that Wall Street is now pricing in risk better than before, but major issues could cause this trend to continue for a while. Here’s why my take on the company is shifting to a more bearish one right now.

Warnings from Analysts

Baird analyst Ben Kallo suggests caution with this EV stock. He recently issued a “hold” rating on the stock and raised some concerns about Lucid Group.

Although he praised Lucid’s technology, especially its in-house software and drivetrain, he advised restraint.

Kallo praised Lucid Group’s technology, but raised concerns. He noted the challenging near-term situation because of high prices and a niche market.

Profitably scaling EV production has been difficult for Lucid, and supply chain issues have led to production guidance reductions.

Lucid Group might need to secure additional funding, potentially through borrowing or stock issuance, to support its growth strategy, especially in a high-cost capital environment, according to Kallo’s analysis.

However, such funding would cause either dilution or balance sheet degradation, which would negatively affect investors.

A Bearish Take on this EV Stock

Lucid’s stock has experienced significant volatility in the past year, reaching a high of nearly $18 per share after securing Saudi government funding but recently dropping to below $6 per share, posing challenges for long-term investors.

The Saudi government’s long-term investment in Lucid provides stability, but it may still need additional financial support despite the billions from the PIF sovereign wealth fund.

Considering Kallo’s warnings, it’s wise to reconsider investing in Lucid Group. Venturing into China’s EV market could be costly. Indeed, Lucid’s stockholders haven’t fared well, and upcoming quarters may not be better.

This isn’t a stock with spurious fundamentals but the benefit of positive price momentum. In fact, it’s quite the opposite.

Final Thoughts

Even with its ongoing challenges in the U.S., Lucid Group seems to have its sights set on entering the Chinese EV market, according to hints from the company’s chief engineer, Eric Bach, at an auto show in Germany.

This expansion may raise concerns, considering the current issues Lucid faces in its home market.

Lucid Group’s luxury vehicles, despite price reductions, remain unaffordable for many buyers in today’s economic climate. Additionally, Lucid’s financial performance hasn’t met Wall Street’s modest projections.

Given these challenges, I wouldn’t advise investing in Lucid Group, even if LCID stock experiences a significant decline. It’s prudent to remain on the sidelines for now, and there are plenty of other options in this space with more favorable risk/reward profiles to consider. 

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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