Should You Buy Lucid While It’s Under $5?

EV stocks exploded to new heights just a few years ago, The Lucid Group (LCID 1.51%) included as cheap money fueled new investment in electric vehicles. But when interest rates rose and vehicle costs rose, most EV stocks fell back to Earth.

Lucid’s stock price has fallen about 80% over the past three years, putting its shares below $5 right now. At this price, is now a good time to buy Lucid? Let’s take a look at what’s going well with Lucid, as well as its obstacles to find the right investment strategy.

What is happening with Lucid now?

Let’s start with the good news. Lucid received a $1.5 billion commitment from Saudi Arabia’s Public Investment Fund (PIF) in early August. The PIF has been Lucid’s biggest financial backer, pouring billions of dollars into the company so far.

That investment helped allay fears of Lucid’s massive spending spree (more on that in a moment) as the company tries to ramp up vehicle production. Lucid says the cash investment will keep the company funded through the fourth quarter of 2025.

This is certainly good news for the EV start-up and comes as the company gears up for the launch of its Gravity SUV. So far, Lucid has only produced variants of its Air luxury sedan. But the Gravity will allow Lucid to enter a new vehicle segment and tap into American consumers’ obsession with SUVs.

The Gravity will be available later this year, and its starting price is under $80,000. For what it’s worth, automakers often quote low starting prices but don’t immediately start selling the cheaper trim levels.

However, Lucid’s Gravity could be a winner for the company. Lucid’s management believes that the total addressable market for Gravity could be six times higher than for its Air sedan.

Lucid still has some big hurdles to overcome

That’s all well and good, and I don’t blame investors for taking the company’s recent cash infusion and its Gravity SUV as reasons to be optimistic. But there are some major obstacles facing Lucid right now.

For investors who have been following Lucid for some time, one of the company’s glaring problems has been poor vehicle production. The company produced just 8,428 vehicles last year and says it will produce around 9,000 vehicles this year.

That’s a massive shortfall compared to when the company first went public and said it would produce 90,000 vehicles in 2024. It’s also well behind the EV start-up. Rivian Automotivewhich produced over 57,000 last year.

Image source: Lucid Group.

That’s not unusual for automotive start-ups, but turning out 9,000 vehicles annually after starting production in 2021 is far from impressive.

Not only did vehicle production get off to a slow start, but Lucid’s sales are still underwhelming. This year’s first-quarter sales rose just 15.5%, and second-quarter sales rose 33% to just $200 million. Lucid, meanwhile, had a net loss of $1.3 billion in the first half of the year.

Part of the company’s second-quarter sales growth was also due to price cuts on its Air sedan of up to 10 percent, which likely contributed to a temporary sales boost. This is an acceptable strategy if you need to move vehicles, but not great when you’re a young startup that needs to maximize the amount of money you make from each vehicle.

Should you buy Lucid now?

I love the Lucid and support its success because it’s a great vehicle. But for all the reasons I mentioned, I don’t think you should be buying Lucid stock right now.

The company still needs to prove that it can increase vehicle production and sell many more vehicles than it is selling now. Until that happens, Lucid will continue to consume money. Perhaps its new SUV Gravity will help the company, but this is still far from a sure thing. And with its stock trading at a price-to-sales (P/S) ratio of 14.6, Lucid’s stock is still more expensive than Rivian, which has a P/S ratio of just 2.8.

All of this means that investors may be better off sitting on the sidelines to see if Lucid can fix some of its more glaring issues before buying the electric vehicle maker’s stock.