Lucid (NASDAQ: LCID) stock price has been in a freefall in the past few months as concerns about the company continued. The shares were trading at $7.27 on Tuesday, about 90% below the all-time high, giving it a market cap of over $13 billion.
Lucid faces major risks ahead
Lucid Motors is building premium electric vehicles it hopes will compete with the likes of Tesla (NASDAQ: TSLA) and Mercedes Benz. Its cars start at $87,400, which is higher than the average new car price. Its most expensive Sapphire brand starts at $249,000, and the price can go much higher than that.
Even with subsidies, these vehicles are still out of reach of most Americans as interest rates remains at an elevated level.
Lucid and other EV companies have been encouraged by actions by government mandates. Some American states like California and New York have announced a phase out of Internal Combustion Engine (ICE) cars.
The risk is that these mandates will likely not work since most Americans are not ready to buy EVs and the energy infrastructure is not prepared. A recent study showed that about 47% of adults don’t plan to buy an EV. Only 19% of the respondents said that they will most likely buy an EV. It now seems like demand for EVs is slowing as companies start slashing prices.
Watch here: https://www.youtube.com/embed/XcrJW567ds4?feature=oembedLucid needs more money
The other risk for Lucid is that the company needs money – a lot of it. Its cash and short-term investments have crashed from over $6.2 billion in 2021 to $3.9 billion. And the CFO has warned that these funds will last until Q1 of 2024. Therefore, the company will need to raise capital by possibly selling new shares.
Estimates are that Lucid Motors will break even in 2028 when its revenue will jump to over $16.7 billion. This is too far, meaning that the firm will need more financing. Lucid has a history of diluting shareholders since the number of outstanding shares have jumped to over 1.69 billion from the 2021 low of 38 million.
Therefore, Lucid has three main risks that investors should be aware of. It has a financing risk since it needs more money. Further, it has a demand risk as competition rise. Finally, there are valuation risks since the company is highly overvalued.
What next for Lucid stock price?
There are risks to the bearish thesis. The biggest risk is that Saudi Arabia is the biggest shareholder in the company. Saudi, which is swimming in cash, might decide to buy the company outright if it gets cheaper.
Further, there is a risk that the company will attract day traders if the Fed points to a pivot in this week’s meeting. If this happens, there is a likelihood that the stock will surge. Recently, we have seen these parabolic moves happen with the likes of AMTD and Workhorse Group.
Despite these risks, I believe that the Lucid stock price will continue falling as bears target the key support at $5.
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