Clear Stocks: Buy, Sell or Hold?

When it went public in 2021, many investors cheered The Lucid Group (LCID 0.77%) as “next adze (TSLA 0.21%).” The luxury electric vehicle (EV) maker drew a lot of attention for two reasons: It was led by former Tesla chief vehicle engineer Peter Rawlinson and was aiming to deliver 20,000 vehicles in 2022 and 49,000 in 2023.

In reality, Lucid delivered just 4,369 vehicles in 2022 and 6,001 in 2023. It has struggled to overcome supply chain constraints, delays and recalls, and has repeatedly cut prices to attract new customers. As a result, Lucid’s stock has fallen 80% over the past three years.

So, is it a good time to buy, sell, or own this burned-out EV stock?

Image source: Lucid.

Reasons to buy or own Lucid’s stock

Bulls love Lucid because it is ramping up deliveries, launching new vehicles and is backed by big investors in Saudi Arabia.

It produced 3,838 vehicles in the first half of 2024 and expects to produce 9,000 for the full year. It currently sells several versions of its Air sedan, but plans to launch its new Gravity SUV by the end of 2024. Analysts expect its revenue to grow 28% to $762 million in 2024 and grow by 152% to $1.9 billion in 2025 as it sells more. SUVs.

With an enterprise value of $9.5 billion, Lucid looks reasonably valued at 5 times next year’s sales. Slower-growing Tesla trades at 7 times next year’s sales.

Lucid plans to expand the annual production capacity of its AMP-1 plant in Arizona from 34,000 vehicles to 400,000 vehicles over the next four years. It also aims to increase the annual capacity of its AMP-2 plant in Saudi Arabia from 5,000 vehicles to 155,000 by “mid-decade”.

Lucid plans to achieve this impressive expansion with the support of the government of Saudi Arabia, which holds more than 60% of its outstanding shares through its Public Investment Fund (PIF). The government of Saudi Arabia previously funded Lucid’s construction of the AMP-2 and plans to purchase 100,000 vehicles over the next decade.

Lucid ended the second quarter of 2024 with $4.3 billion in total liquidity and won another $1.5 billion commitment from a PIF affiliate in early August. The cash is expected to sustain its business until “at least the fourth quarter of 2025.”

If Lucid successfully expands its business, analysts expect its revenue to rise to $3.6 billion in 2026. That would be comparable only to Tesla’s $3.2 billion in annual revenue in 2014 — which in the later they grew. more than 30 times to $96.8 billion in 2023. If Lucid can achieve just a fraction of that growth, its stock could skyrocket over the next few years.

Reasons to sell Lucid shares

Bears don’t like Lucid because it’s still cutting prices, posting steep losses and is too dependent on its backers in Saudi Arabia. It has repeatedly cut the prices of its Air sedans over the past two years, and the cheapest Pure model now costs about $70,000. That would make it cheaper than Tesla’s Model X SUV, which starts at about $80,000, but much more expensive than its Model 3 sedan, which starts at about $40,000.

When Lucid went public, it aimed to differentiate itself from Tesla with more expensive luxury vehicles. But its recent cuts — which coincide with Tesla’s price cuts — suggest it simply doesn’t have the pricing power to sell high-end luxury electric vehicles.

Even as Lucid ramps up production, analysts still expect net losses of $2.9 billion in 2024, $2.5 billion in 2025 and $1.7 billion in 2026. Tesla posted a net loss of $294 million only when it generated $3.2 billion in revenue. in 2014.

So unless Lucid significantly cuts its losses, it could run out of cash before the economies of scale kick in. If it can’t prove its business model is sustainable, the PIF could pull back, cut its losses and invest in more promising ones. Instead, electric vehicle manufacturers.

Finally, Lucid insiders have still been net sellers over the past 12 months and have not bought any shares over the past three months. That cold feeling suggests it’s still too early to bet on Lucid’s recovery. The company has also significantly increased its share count by more than 40% over the past three years with its secondary offerings and stock-based compensation, and this persistent dilution could further limit long-term gains.

Is it time to buy, sell or own Lucid stock?

Lucid’s business may stabilize, but I don’t see any compelling reason to buy or hold its stock at this point. So for now, investors should either sell or avoid Lucid’s stock until a few more green shoots appear.