Lucid stock price has crashed: Is this endless money pit a buy?

Lucid Group (NASDAQ: LCID) stock price has plunged to a record low as investors avoid the endless money pit. The shares have moved from an all-time high of $65 in February 2021 into a penny stock trading at $3.97. Along the way, its total market cap has slipped from over $55 billion to about $8.7 billion.

The electric vehicle (EV) industry is going through major headwinds as growth slows and the cost of doing business rises. As a result, many EV companies that boomed during the era of low interest rates have now lost traction among investors.

In China, the number of EV companies has dropped from over 500 to less than 100. Similarly, in the United States, Lordstown Motors collapsed while firms like Faraday Future, Canoo, WorkHorse, and Mullen Automotive have become penny stocks.

Lucid Group and Rivian had the most potential to challenge Tesla into becoming the biggest EV company. For one, the two companies had an unlimited pool of cash, with Rivian being backed by Amazon. 

Lucid Group is backed by Saudi Arabia, which still holds a 60% stake in the company. The government has also committed to buying over 100k Lucid vehicles in the next decade. Lucid’s goal was to become the biggest manufacturer of luxury cars.

However, Lucid’s dream has turned into a nightmare as it has become an endless money pit. The company’s net loss has jumped to over $5 billion in the past four financial years. 

At the same time, it has been forced to raise cash from Saudi Arabia. The number of outstanding shares has jumped to over 2.29 million from 2.07 million in 2021.

Lucid has also struggled to scale its manufacturing. The company delivered 4,369 cars in 2022 and it expects to produce over 8,000 this year, a big downgrade from its previous estimate. In contrast, Rivian expects to deliver over 53k vehicles this year.

Lucid Motors faces numerous challenges ahead. For one, it is still a cash incinerator as it works to boost its production. Its cash and short-term investments stood at $4.42 billion, down from $5.2 billion in the June quarter. Most of these funds came from Saudi Arabia.

On the positive side, the company has a huge order backlog from Saudi Arabia. However, the challenge is that the company’s vehicles are still extremely expensive for most people to buy. A look at its website shows that its cheapest vehicle goes for $75,000, with the most expensive starting at $250k.

The challenge is that most Americans prefer trucks than sedans. Therefore, it will struggle to scale up its operations and gain market share in the long term. Remember, other luxury car manufacturers like Ferrari, McLaren, and Porsche are also launching similar sedans.

Therefore, Lucid Motors faces a huge demand problem when you exclude orders from Saudi Arabia. It will also struggle to gain market share in the highly competitive American market.

LCID chart by TradingView

Turning to the daily chart, we see that the LCID stock price has been in a strong bearish trend in the past few months. Most recently, the stock has formed a descending channel, which is seen in red. It also dropped below the important support level at $5.42, the lowest swing in June.

Lucid Group share price remains below all moving averages. Therefore, the outlook for the stock is bearish, with the next level to watch being at $3. The stop-loss for this trade stands at $5. 

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