Lucid Stock: Buy, Sell, or Hold?

When it went public in 2021, many investors hailed Lucid Group (LCID 0.77%) as the “next Tesla (TSLA 0.21%).” The luxury electric vehicle (EV) maker attracted a lot of attention for two reasons: It was led by Tesla’s former chief vehicle engineer, Peter Rawlinson, and it aimed to deliver 20,000 vehicles in 2022 and 49,000 in 2023.

In reality, Lucid delivered only 4,369 vehicles in 2022 and 6,001 in 2023. It struggled to overcome supply chain constraints, delays, and recalls and repeatedly slashed its prices to attract new customers. As a result, Lucid’s stock has plunged 80% over the past three years.

So, is it the right time to buy, sell, or hold this burnt-out EV stock?

The reasons to buy or hold Lucid’s stock

The bulls love Lucid because it’s ramping up its deliveries, rolling out new vehicles, and is backed by big Saudi Arabian investors.

It produced 3,838 vehicles in the first half of 2024 and expects to produce 9,000 for the full year. It currently sells several versions of its Air sedan, but it plans to roll out its new Gravity SUV by late 2024. Analysts expect its revenue to rise 28% to $762 million in 2024 and surge 152% to $1.9 billion in 2025 as it sells more SUVs.

With an enterprise value of $9.5 billion, Lucid looks reasonably valued at 5 times next year’s sales. Tesla, which is growing more slowly, trades at 7 times next year’s sales.

Lucid plans to expand the annual production capacity of its AMP-1 plant in Arizona from 34,000 vehicles to 400,000 vehicles over the next four years. It also aims to increase the annual capacity of its AMP-2 plant in Saudi Arabia from 5,000 vehicles to 155,000 by the “middle of the decade.”

Lucid plans to achieve that impressive expansion with the support of the Saudi Arabian government, which owns more than 60% of its outstanding shares through its Public Investment Fund (PIF). The Saudi Arabian government previously funded Lucid’s construction of AMP-2 and plans to purchase 100,000 of its vehicles over the next decade.

Lucid ended the second quarter of 2024 with $4.3 billion in total liquidity, and it gained another $1.5 billion commitment from a PIF affiliate in early August. It expects that cash to sustain its business through “at least the fourth quarter of 2025.”

If Lucid successfully scales up its business, analysts expect its revenue to soar to $3.6 billion in 2026. That would be comparable only to Tesla’s annual revenue of $3.2 billion back in 2014 — which eventually rose more than 30-fold to $96.8 billion in 2023. If Lucid can achieve just a fraction of that growth, its stock could skyrocket over the next few years.

The reasons to sell Lucid’s stock

The bears don’t like Lucid because it’s still cutting its prices, racking up steep losses, and is overly dependent on its Saudi Arabian backers. It has repeatedly slashed the prices of its Air sedans over the past two years, and its cheapest Pure model now costs about $70,000. That would make it cheaper than Tesla’s Model X SUV, which starts at about $80,000, but a lot more expensive than its Model 3 sedan, which starts at around $40,000.

When Lucid went public, it aimed to differentiate itself from Tesla with pricier luxury vehicles. But its recent discounts — which coincide with Tesla’s price cuts — suggest it simply doesn’t have the pricing power to sell high-end luxury EVs.

Even if Lucid ramps up its production, analysts still expect it to rack up net losses of $2.9 billion in 2024, $2.5 billion in 2025, and $1.7 billion in 2026. Tesla only posted a net loss of $294 million when it generated $3.2 billion in revenue in 2014.

So, unless Lucid significantly narrows its losses, it could still run out of cash before economies of scale kick in. If it can’t prove its business model is sustainable, the PIF might back out, cut its losses, and invest in more promising EV makers instead.

Lastly, Lucid’s insiders were still net sellers over the past 12 months and didn’t buy a single share over the past three months. That chilly insider sentiment suggests it’s still too early to bet on Lucid’s recovery. The company also notably increased its share count by more than 40% over the past three years with its secondary offerings and stock-based compensation, and that persistent dilution could further limit its long-term gains.

Is it time to buy, sell, or hold Lucid’s stock?

Lucid’s business might be stabilizing, but I don’t see any compelling reasons to buy or hold its stock right now. So, for now, investors should either sell or avoid Lucid’s stock until a few more green shoots appear.