Shares of Lucid Group Inc. (NASDAQ: LCID) charged higher on June 27, 2023. Two news items were the catalysts for the bullish sentiment. First, in a Form 4 filing, Saudi Arabia’s Public Investment Fund (PIF) reported the acquisition of 259.69 shares of LCID stock. The transaction, valued at $1.8 billion, gives PIF the equivalent of a 60.5% majority ownership stake in Lucid Group.
Many analysts point out that shareholders shouldn’t be that surprised. Lucid had previously announced it was entering into a private placement with PIF. That was going to provide Lucid with an estimated $1.2 billion.
The second announcement was that Lucid was receiving a stake in Aston Martin Lagonda Global Holdings plc (OTCMKTS: ARGGY). In return for Lucid’s battery components and technology, such as its EV powertrain, the luxury car manufacturer is providing Lucid with company stock that ultimately may bring $232 million to Lucid.
Coincidentally, Saudi Arabia’s PIF also owns an 18% stake in Aston Martin. For his part, Aston Martin Chairman Lawrence Stroll said the two companies have been talking for two years. Stroll also acknowledged, however, that the PIF did suggest the two companies talk.
But whatever the reason for the agreement between the companies, cash through the door is good for Lucid, which is still struggling to meet its production goals.
Lucid Still Needs Cash
Lucid reported its first-quarter earnings in May 2023. At that time the company reported that it had approximately $4 billion in total liquidity. But analysts expect that Lucid will use $2 billion in 2023 and $1.3 billion in 2024. This was confirmed by Lucid’s chief financial officer (CFO), Sherry House, who stated that Lucid had an adequate cash balance to sustain its business operations until the second quarter of 2024.
That may be true. But it further highlights the fact that as promising as the EV revolution promises to be, these are still capital-intensive companies. These deals will help Lucid keep moving forward. But at some point, the company will have to show it has the ability to deliver cars at scale.
Long-Term Investors Should Wait to See More
The EV market is in the early innings of what will be a perhaps decade-long opportunity for investors. But right now, Tesla, Inc. (NASDAQ: TSLA) is still king of the hill. Lucid is forecasting the delivery of 10,000 vehicles in 2023.
This comes after the company, like many EV manufacturers, overpromised and underdelivered in 2022. The company announced an ambitious target of 20,000 EVs but only managed to deliver 7,180 vehicles.
This brings me back to Lucid stock itself. Despite this impressive one-day gain, LCID stock is still down 66.8% in the last 12 months. Before this recent news, the stock was in danger of dipping below the $5 mark, which would have put the stock into penny stock territory.
An investor should still be aware that there is over 23% of short interest in LCID stock. In the short term, this news may provide ammunition for a short squeeze. If you’re comfortable with that risk, it may be an intriguing time to buy the stock. Otherwise, you’ll have time to catch the stock.
