Electric vehicle manufacturer Lucid Group (NASDAQ:LCID) might produce sleek and powerful automobiles, but there are problems underneath the hood of this company. Instead of waiting for a miracle to happen, investors should cut their losses or, better yet, just avoid Lucid stock altogether.
I have to respect Lucid Group’s loyal investors. They’ve suffered harsh losses this year. I wish I could deliver some good news to lift their spirits, but even a recent share-price bump shouldn’t get anyone’s hopes up about Lucid Group.
Why Lucid Stock Perked Up Recently
In the first quarter of 2024, Lucid Group suffered adjusted EPS and adjusted EBITDA losses that were worse than analysts’ consensus forecasts. After that, Lucid’s shareholders really needed a confidence booster.
Lucid Group’s launch of the upcoming Gravity SUV model probably won’t happen until later this year. So, that won’t be an immediate catalyst. However, in search of any potentially positive news, Lucid’s investors noted that something good happened to a rival EV startup.
Specifically, Volkswagen (OTCMKTS:VWAGY) plans to invest as much as $5 billion in Rivian Automotive (NASDAQ:RIVN). Lucid stock rallied briefly, probably based on hopes that something similar would happen to Lucid Group soon.
I wouldn’t wait around for that to happen. Lucid Group already has a major financial backer, Saudi Arabia’s Public Investment Fund. The PIF has supported Lucid for a while, but this hasn’t prevented Lucid’s shares from losing value over the long term.
Lucid’s Financial Issues
Besides, Lucid Group has serious problems. It’s hard to imagine that any large company would want to take a big risk and try to rescue the automaker.
Lucid’s cash-burn problem isn’t a secret. In December, Blanke Schein Wealth Management Chief Investment Officer Robert Schein warned that Lucid Group “could be out of cash within a year this time next year.”
Lucid Group CEO Peter Rawlinson admitted that the company will need to raise capital and acknowledged a cash-burn rate of “around $1bn a quarter.” That’s problematic, as Lucid only had $4.78 billion worth of cash at the end of last year.
Additionally, Lucid Group is undergoing what might be called a “restructuring.” Personally, I’d just call it a distress signal.
The automaker is reducing its staff by around 400 jobs, or approximately 6% of Lucid’s workforce. This will incur around $21 million to $25 million worth of financial losses for the company. Cutting costs can be surprisingly expensive, and Lucid Group isn’t in a great position to sustain losses.
Lucid Stock: Patience Won’t Be Rewarded
There’s a difference between being patient and holding on to a losing position. Despite their loyalty, patience won’t likely pay off for Lucid Group’s long-term investors.
Lucid Group already has a major backer (Saudi Arabia’s PIF). However, this hasn’t brought much relief for the shareholders. It also hasn’t put Lucid in a good financial position. Therefore, it’s wise to stay away from Lucid stock and/or cut any losses you might have.
On the date of publication, David Moadel 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.