Lucid Stock Analysis: The Bull and Bear Case for LCID

Lucid Group (NASDAQ:LCID) stock is a relatively new entrant in the electric vehicle (EV) industry focusing on the premium and luxury segments with state of the art vehicles. Based on its first model, the Lucid Air, the company has gained much attention for its sophisticated battery technology and best-in-class efficiency. 

This article will present the bull and bear cases for Lucid stock. To summarize the arguments, this is a company with a very good market position in luxury electric vehicles and it has the technology to support further growth. On the other hand, some of the issues that might hinder the growth and profitability of the company include financial problems as well as operational issues. 

A position I’ve taken consistently against relatively speculative names like LCID in this current market environment is to hold it, rather than to buy or offload shares. This comes amid a selloff in the Nasdaq and rising fears of a recession in the U.S. 

With that said, here are the arguments that support the bull, bear, and hold cases for Lucid stock.

Lucid’s Battery Technology

The strongest feature of Lucid’s vehicles to me comes from its battery technology, which enables them to travel at superior distances compared with rivals. For instance, the Lucid Air Dream Edition has a maximum estimated range of 520 miles per charge according to the Environmental Protection Agency (EPA). To put this distance into context, that’s over a hundred miles longer than Rivian’s (NASDAQ:RIVN) R1T model at 410 miles as well as Tesla’s (NASDAQ:TSLA) Model S at 402 miles. It places Lucid stock at the very top of the market in terms of battery efficiency.

Lucid aims to produce around 9,000 vehicles in 2024, which is relatively close to the previous years. In Q2, the company produced 2,110 vehicles and delivered 2,394 vehicles. This is a 70% increase in deliveries year-over-year, which suggests strong interest from the market. LCID also announced it would reduce its workforce by around 6%, which will free up vital operational cash flow.

Lucid’s Financials are Troubling

Lucid stock has high short interest at the time of writing, hovering at around the 10.29% mark. It also has high annual operating losses and has been using cash at a rather fast pace. Free cash flow stands at a negative $3.07 billion over the past 12 months.

Lucid has also faced lower demand for its vehicles compared with its peers thanks to targeting the premium EV market. This has seen Lucid stock cut its vehicles prices to stimulate demand. The price of its Air sedan was cut by 10% this year alone. I foresee LCID will continue to face sluggish growth in the market as the EV demand slows across the board.

Another argument could be made that investors don’t receive a lot of bang for their buck when comparing Lucid’s EV’s with its peers aside from battery efficiency. The features found on cars have become homogenized by manufacturers over time. Features like leather seats, climate control and in-car entertainment system are cheaper to produce. It allowed them to get adopted in budget and premium models across manufacturer vehicles lines to maintain competitiveness.

It could be hard for a relatively obscure brand like LCID to demand higher prices if consumers aren’t getting considerably more value compared with less expensive models that still tick most of their boxes.

LCID could trade at a discount

I think the main argument to hold off on buying Lucid stock, which is my recommendation, is that inventors could buy LCID up at a relative discount once its vehicles and competitive position have been vetted by the market.

While delivery numbers are up significantly, it still has only produced $600 million worth of revenue. Its market cap, however, stands at $7.2 billion. These might be heavy expectations on LCID’s shoulders that it is unable to carry. Analysts also predict that Lucid stock won’t reach breakeven profitability by FY2028 at the earliest. That’s a long time for investors to hold Lucid’s bag without seeing a return.

Despite its stock price falling 24.82% over the past 12 months, my view is that it could fall much further. It trades at 11.6x sales, which might be too optimistic, but not entirely unreasonable. I would be tempted to buy Lucid stock at market dips. I think we could be in the right macro backdrop for speculative names to go on sale shortly.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.