Should Investors Buy Lucid Stock If It Tests $20?

It’s been a rough couple of days for Lucid Group (NASDAQ:LCID) investors after the luxury electric vehicle (EV) maker reported disappointing fourth-quarter earnings and cut its 2022 production estimate by up to 40%. The company now predicts it will deliver just 12,000 to 14,000 vehicles, down from 20,000 previously, citing ” supply chain and logistics challenges.” Not surprisingly, the news sent investors scurrying for the exits, with LCID stock down around 15% since the announcement.

Currently, LCID stock is trading below $25 a share. On two occasions over the past 52 weeks, LCID stock fell below $20. On both of those occasions, shares rebounded back above $20 in fairly short order.

So, the question is: If LCID stock drops below $20 in the next few days, is it a buy?

A Closer Look at LCID Stock

I’m not a technical analyst by any means, but it seems pretty evident that $20 is a level of significant support for shares of the EV maker. 

LCID stock closed below $20 on May 3. It stayed below that level for 15 trading days before closing at $20.28 on May 25. By late June, shares were trading around $29.

On Aug. 31, LCID stock again dipped below $20 on a closing basis. It then closed below that level for 10 out of the next 11 trading days before closing at $21.17 on Sept. 16. Roughly two months later, shares had rallied more than 160%.

While shares have been falling since their mid-November high, they have not yet breached the $20 support level. If they do, the next support level should be around $17.50. 

As I said, I’m not a technical analyst. But if I was an innovation investor with a value bent, I’d be looking to buy LCID stock somewhere under $20 and closer to $17, if possible. 

As I mentioned in my introduction, Lucid announced a significant production cut, sparking a big drop in shares. For those long LCID stock, the production cut, while disappointing, is part of the journey. Tesla (NASDAQ:TSLA) went on a similar roller-coaster ride.

If you want to make money on Lucid, you’ve got to have diamond hands. You also need to buy when others are fearful like they are now. 

Lucid Announces Plans for Overseas Expansion

On the same day Lucid reported earnings and the production cuts, the company also announced plans to build its first international manufacturing plant in Saudi Arabia.

At first, Lucid will ship vehicle kits manufactured in Arizona to Saudi Arabia, where they will be reassembled at a facility in King Abdullah Economic City (KEAC). Eventually, the facility will be capable of producing complete vehicles. Ultimately, Lucid expects to manufacture as many as 150,000 EVs a year there with management expecting the plan to add up to $3.4 billion to the company’s value over 15 years. 

It makes sense that Lucid’s first plant outside the U.S. would be in Saudi Arabia. Saudi Arabia’s Public Investment Fund (PIF) is the majority owner of Lucid, with a nearly 63% stake. And the country is Lucid’s second-biggest market for pre-orders, according to Chief Executive Officer Peter Rawlinson.

As Lucid continues to expand, it will need a lot of cash. Luckily, it has it, both on its balance sheet and from its PIF backing. That’s a potent combination. 

“We have a strong team, strong products, and a strong balance sheet with over $6.2 billion in cash on hand at year-end. We continue to invest in our business; we met our target of opening 20 Studio and Service locations in North America; in 2022 we will expand our footprint in Europe and the Middle East while laying the foundation for a later expansion into the Asia Pacific,” Chief Financial Officer Sherry House said in the press release accompanying the company’s latest earnings announcement. 

It Could Get Worse Before It Gets Better

Speaking of earnings, there were several things in the company’s Q4 report that didn’t meet investor expectations.

Lucid reported $26.4 million in revenue, a more than seven-fold improvement over Q4 2020. Yet, this was below the $37 million analysts were expecting. 

Meanwhile, Lucid lost $1.05 billion compared with a loss of $297 million a year ago. And the per-share loss of 64 cents was almost double the 35-cent consensus estimate.

Furthermore, Lucid fell short on its planned deliveries for the fourth quarter. Rather than an estimated 500 of its flagship Air sedans being shipped, Lucid delivered 125.

To add a bit more salt to investors’ wounds, Rawlinson said the launch of Lucid’s Gravity SUV has been pushed back to the first half of 2024. Initially, the company planned to roll out the electric SUV in 2023. 

Keep in mind that this was only Lucid’s second earnings report as a publicly traded company. But if it continues to deliver underwhelming results, investors in LCID stock may start to wish it stayed privately owned. 

Lucid’s reduction in 2022 production translates into a $1.36 billion reduction in sales based on an 8,000 vehicle reduction and a $170,000 sale price

Losses are estimated to remain high, with analysts expecting the company to lose $1.10 a share in 2022 and 83 cents a share in 2023. Based on 1.65 billion shares outstanding, that’s a two-year combined loss of nearly $3.2 billion. 

Lucid has plenty of cash. But it’s impossible to know whether it will hit its production targets or continue to lower them. If the company fails to deliver at least 2,500 to 3,000 vehicles in the first quarter, expect LCID stock to fall some more. 

The Bottom Line on LCID Stock

The last time I wrote about LCID stock was in mid-February. At the time, I argued it should be valued at $7 billion less than Nio (NYSE:NIO) and not the other way around. 

The earnings miss and production cut reduced the market capitalization of LCID stock by a little more than $7 billion in a single day of trading. Yet, its $40.6 billion market cap is still more than $4 billion higher than Nio’s market cap.

If you’re going to buy LCID stock, I’d wait until it drops to $21 to take a half position. Then wait to see what happens over the next three to six months as you consider whether to buy more shares. The risk-to-reward for LCID stock is much better at $21 or $18 than it is at $24, so your patience should be rewarded.  

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.