Lucid Motors: Overly Troubled EV Stock?

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© Reuters. Lucid Motors: Overly Troubled EV Stock?

Lucid (LCID) is one of the leading electric vehicle manufacturers worldwide, with a market capitalization of almost $37 billion. This EV manufacturer is only behind Tesla (NASDAQ:) and Nio (NYSE:) in terms of market cap. 

Lucid Motor stocks have been one of the most interesting picks this year for investors and analysts alike. Lucid stock, which was then trading as Churchill Capital, jumped from $10 to $60 within a span of few weeks. However, as the terms of Churchill’s SPAC merger came to light, company shares dramatically lost over half of their value overnight. 

Although Lucid and Churchill completed the planned merger, the stock failed to rebound to its previous levels. Instead, shares have been trading in the range of $20 and $30.

Lucid investors expecting the stock to return back to its $60 level might have to wait for some time.

While shares of this EV maker have gone up by 103% year-to-date, the stock suffered a 13% decline in the past month. Indeed, Lucid stock is going through a rough patch. I am neutral on this stock. (See Lucid Group stock charts on TipRanks)

Let’s find out in detail. 

PIPE Lock-up Provision made Investors Jittery

According to the SPAC merger announcement of Lucid, numerous lock-up provisions have been formulated. The inclusion of such lock-up provisions has made it difficult to assess and clearly understand details of the lock-in period. 

Investors would not be allowed to sell off shares during the said period. PIPE (private investment in public equity) investors can sell off the shares on September 1, when the lock-in period expires. However, other investors are barred from selling shares until 6 to 18 months after they receive the shares.  

These complications haven’t helped the stock at all.

Infrastructure Bill Won’t Benefit Lucid

The United States Senate passed the much-discussed infrastructure bill last month. It is expected to provide a boost to the electric vehicle sector. While this bill might benefit the big EV makers, it might actually hurt the prospects of upstarts like Lucid.

That’s because the government currently offers a $7,500 tax credit for the first 200,000 units that a manufacturer produces. The tax credit is not provided after the 200,000 mark. Until now, only large manufacturers like Tesla and General Motors (NYSE:) have reached that mark. Analysts thought that new EV upstarts would have a more favorable tax credit system. However, things didn’t end up as expected.

The Senate, on the contrary, removed the 200,000 mark. While this might be beneficial for the bigger manufacturers, it won’t necessarily help newer upstarts like Lucid. This is because the bill allows producers like Tesla and GM to avail tax credits on an unlimited number of EVs. 

Moreover, this bill says EVs with a base price under $40,000 will be eligible to receive a tax credit. Most EV models from Lucid cost way above the $40,000 mark. Also, only customers with an annual income below $100,000 would be eligible for this tax credit. 

Thus, such provisions will only reduce the prospects of Lucid. 

A Difficult Road Ahead for Lucid

Lucid plans to sell 20,000 units in 2022, followed by 49,000 units in 2023. It expects to generate revenue of $2.2 billion in 2022. By 2030, the company intends to sell as many as 500,000 EVs. 

However, the EV manufacturer is already facing various risks that can hamper its future plans. There has been a considerable delay in production with numerous technical issues after launch. 

On top of that, there has been a sudden shortage of semiconductors worldwide, which is hampering EV production. Investors might not need to worry about delays impacting the future of the company. However, continued delays and missed production targets can negatively affect the growth prospect of the company.

Bottom Line

Although Lucid stock looks to be in bad shape right now, it can deliver a decent market performance in the future. The company targets to reach $22.7 billion in sales by 2026. Moreover, it comes with a far-sighted management team and an interesting lineup of EVs. Investors willing to take a little risk could benefit greatly from this stock. 

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

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