Lucid Stock Headlines Could Be Investor Traps

It’s all about the miles, sort of, with Lucid (NASDAQ:LCID) stock popping 10% since yesterday on positive reports about its range.

According to the U.S. Environmental Protection Agency, the Lucid Air Dream edition can go 520 miles on one charge. That is 20% longer than Tesla (NASDAQ:TSLA), so that’s quite an accomplishment. The company should be proud to beat the leader of the EV pack. But today’s note will take a bearish tone from the stock price action perspective.

For starter, the headline is about the $170,000 Air Dream edition, more on that later. From an investment perspective, I would be more excited about a production date headline. They have had delays, and they promised us one this year. Until then, I would not chase range performance headlines with stock buying. I prefer sticking with EV companies that actually have a current income stream.

LCID Stock Perspective Is Important

I am not suggesting that LCID stock is bad. My point today is to be realistic with the expectations. The company has a great product, and this headline highlights one aspect of that. Designing great cars and having a successful business for investors are different things.

Since they are still pre-production, the current LCID stock price is all from hope. Investors who buy the shares today don’t have tangible value that comes out of an income statement. Yes, it’s a real company with hundreds of employees but no dollars are coming in yet. They forecast to sell 20,000 units next year but they haven’t even started production.

Let’s circle back to the price wrinkle, which is my second sticky point today. The entry model is $78,000, then the next two are $95k and $130k. These are not cars for the masses. By definition they are aiming for a niche  of the 1 percenters. There are successful companies that operate well there, but it’s just another potential hiccup. The model that goes 520 miles is $170,000.

I’ve had debates over these points and the other side always suggests that it’s a Tesla slayer. Maybe so, but it will take years. Nio (NYSE:NIO) already sells almost 50,000 cars per year and is growing fast. Lucid production capacity will be 34,000.

Before Lucid can fight the champ, the company needs to challenge the smaller fighters. Besides, Tesla currently generates more than $6 billion in cash from their own operations. Lucid won’t earn its first sale until maybe next year. Even if they sell nothing but the highest model, total sales would be smaller than Tesla’s positive cash flow.

Time to Market Is Critical

Now that I have upset all the LCID stock fans, let’s talk about the good stuff. Lucid has designed a great car and it will fit right in today’s market.

The electric vehicle assault on the internal combustion engine is legit. Luckily for Lucid, this changing of the guards will last years. Therefore, if they don’t have any delays, they could get into the thick of it over time. However, the company won’t have the early mover advantage say from last year.

By now, there are three clear EV new companies leading the charge. Tesla laid the path, Nio and XPeng (NYSE:XPEV) rushed right in. The legacy car makers are now all in and gaining momentum quickly. Pretty soon there won’t be much left if Lucid doesn’t beat feet.

In closing, I’d like to make it clear that my point is to not badmouth the Lucid car. In fact, it’s gorgeous and functional without a doubt. My concern is with the expectations from investors. The stock is heading into prior fail zones, so timing could be sub-optimal.

I am a strong believer in technical analysis for a very simple reason. Machines are responsible for most of the price action and they are predictable. This pop in LCID stock brings it back to a very contentious level. It’s been a battle zone since its inception.

It served as a massive breakout line in January, then was support through June. Now the bulls are coming at it from below. Usually, prior support becomes forward resistance at least on the first attempt. Investors looking to chase it on this pop would do well taking only partial positions. Leave room to add on dips.

We are going into a taper event and the Federal Reserve could tell us about it next week. The stimulus tailwinds are coming off and stocks could feel a bit of a drag. Regardless of how good the opportunity in LCID stock, it doesn’t trade in a vacuum. If the markets are going to correct, they will take all stocks down too. Therefore, caution is my only emphatic message now.

On the date of publication, Nicolas Chahine 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.

Nicolas Chahine is the managing director of SellSpreads.com.