Drive With Caution: Why Now Is Not the Time to Go All-In on Lucid Stock

As the EV landscape shifts, investors considering Lucid Group (NASDAQ:LCID) stock for its recent strong performance have been rewarded.

Momentum has taken LCID stock on a bumpy, but upward ride this year. And while Lucid has seen its valuation come down from its peak in Q1, there are reasons some investors remain very bullish on this name.

Lucid’s ability to grow in its high-end niche will be put to the test. However, as with other higher-end EV makers like Tesla (NASDAQ:TSLA), if it scales, big-time profitability could be possible. It all depends on the ability of Lucid to grab market share from the incumbents and scale its operations.

That’s where the crux of the issue lies for most investors. Various production-related issues, and a very capital-intensive ramp up, have left early investors diluted and unhappy.

While the company’s management team has ambitions to rival Tesla in the higher-end EV market, uncertainties around China and the competitive landscape persist. Thus, this is a risky bet to be making right now, and one I wouldn’t bet the farm on.

Disappointing Q2 Results

Besides the above factors, Lucid has had a tough time delivering blowout results. On July 12, the company reported production and delivery figures (much to the chagrin of investors).

Lucid reported a delivered-to-produced ratio of only 64%, meaning more than one-third of its vehicles are currently sitting in inventory. 

When investors see this, their minds obviously ask the next logical question. Does that mean demand isn’t meeting supply? For any sort of commodity-producing company, that’s the kiss of death.

The company suggests that its picking up production to meet demand, and that demand remains strong. However, in Q2, the company fell short on vehicle deliveries.

Notably, production of the company’s Lucid Air luxury sedan decreased to 2,173 from Q1’s 2,314, causing an 11% share price drop. 

Despite Lucid Air’s appealing features, demand concerns persist, attributed to CEO Peter Rawlinson’s marketing challenges in turning reservations into orders and questionable production forecasts.

The Aston Martin deal and Saudi Arabia’s investment offer positive aspects amid these concerns.

Tight Competition in the Market

Lucid Group grapples with competition in the EV market due to low deliveries. Although board member Andrew Liveris denies targeting Tesla, it’s reminiscent of a small fish downplaying its competition with a giant whale.

Lucid must face Tesla in the competitive EV market.

Liveris stressed the need for scaling and positive cash flow, but Lucid’s financials show negative cash flow. In contrast, Ford’s recent Q2 results showed improved earnings and free cash flow projections.

Yet, Ford’s EV production delays benefit Lucid, which has seen a 20% stock increase in the past month due to potential advantages from Ford’s lower EV volumes.

What Now

Lucid targets a new model to leverage potential delays from Ford, fueling investor interest in the Gravity SUV.

Yet, production and demand issues persist, challenging Lucid’s viability amidst intense competition, including Tesla. The stark delivery data underscores these hurdles, cautioning against sizable bets on LCID stock for now.

Those who benefited from a sudden Lucid Group stock rise should seize the chance to secure gains. Share-price fluctuations may not align with long-term value.

Right now, I’d give LCID stock a “C” grade, and believe this company may be an intriguing speculative bet to some, but remains a difficult proposition for long-term investors. 

On the date of publication, Chris MacDonald 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.