After plunging during February, Lucid Group (NASDAQ:LCID) appears to be finding some support at around $8 per share. Is now the time to “buy the dip” with LCID stock? Not so fast!
The market may have absorbed the latest round of disappointing news with this electric vehicle (or EV) company, but that doesn’t mean that a comeback is just around the corner.
Even as the company still has some advantages compared to other fledgling EV makers, Lucid does not appear to be on the brink of making big improvements in its operating performance. Instead, the company is likely to continue disappointing investors.
With this, there’s little reason to go against the grain, and make this stock a buy today. Rather than on the verge of making a stunning rebound, shares are more likely to experience a continued decline in price. Here’s why.
The Rise and Fall of an EV Young Gun
Back in 2021, before and after Lucid Group went public via a special purpose acquisition company (or SPAC) merger, it was arguably the “young gun” amongst the early-stage EV companies.
Conveying to investors that it intended to beat Tesla (NASDAQ:TSLA) at its own game, LCID stock could get a valuation rivaling that of established automakers. Quite a feat, given that the EV maker was only starting to roll its flagship Air luxury EVs off the assembly line.
However, Lucid lost its “young gun” reputation in 2022. Throughout the year, the company steadily lost its luster. Changing economic conditions resulted in big declines for speculative growth stocks, EV stocks included. Alongside this, issues such as the supply chain crisis slowed the company’s production progress.
Burning through billions by year’s end, few were considering Lucid a potential “Tesla killer” anymore. Flash forward to now, and the market is again growing very bearish on the stock.
Although buyout rumors temporarily elevated shares in late January/early February, another wave of negative news has again sunk the stock back down to rock-bottom prices.
Comeback Kid? Don’t Count on It
LCID stock looks, swims, and quacks like a busted growth story. However, I can still see why some may want to believe this now former young gun could soon morph into a “comeback kid.”
After all, with its substantial backing from Saudi Arabia, both in terms of investment capital (via the Public Investment Fund, or PIF), as well as from a 100,000 vehicle order from the Saudi government, I’ll admit that Lucid has a lot more in its corner than other struggling EV firms, like Mullen Automotive (NASDAQ:MULN) and Lordstown Motors (NASDAQ:RIDE).
The Saudi factor is far outweighed by the company’s production and demand problems. As I have argued previously, even as supply chain bottlenecks resolve, the company is clearly still struggling to scale up production. Lucid only plans to produce between 10,000 and 14,000 vehicles this year after producing just 7,180 vehicles in 2022, .
As for demand, the situation is even more concerning. Since August, total reservations for the Lucid Air have dropped from 37,000, to 28,000, and the company, perhaps to save face, has stopped providing further updates with this metric.
Bottom Line: Don’t Go Contrarian on LCID
Again, with a deep-pocketed backer in its corner, Lucid isn’t likely to go out of business soon. Yet with production and demand falling short of expectations, the potential future value of this onetime “Tesla killer” candidate continues to dwindle.
Throw in the strong chance of heavy dilution, as the unprofitable firm shores up its depleted cash position, and Lucid Group shares appear destined to continue steadily falling in value. First the stock fell to its 52-week low, and then possibly down to penny stock prices (under $5 per share).
This is a bona fide “show me” situation. Until more concrete signs emerge that the company is resolving its production issues, and experiencing a rebound in demand, avoid the urge to go contrarian. As it stands now, betting on a LCID stock comeback will end in tears, more likely than not.
On the date of publication, Thomas Niel did not hold (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.