Lucid Group’s (NASDAQ: LCID) stock price is recovering from a new low set in November, suggesting a bottom is in play. However, the company’s risks remain, and the downtrend is intact, so investors should be wary. The move back above $2.70 in mid-December is promising but has yet to cross the critical resistance point near $2.90. That level aligns with the bottom edge of the gap formed in October and the 150-day EMA, which may provide strong resistance to higher prices. The gap lower was caused by a new share offering. The company says the market misinterpreted the move, but it is hard to misinterpret dilutive actions from a company struggling to gain traction.
Lucid Group Dilutes Stocks: Headwinds for Share Prices Grow Stronger
Lucid’s stock dilution is great. The company leaned hard into dilutive actions in 2023 and 2024, selling a bulk of shares to the Saudi PIF while also raising capital in the open market. As a result, over a million shares of redeemable preferred stock are now on the books. The company’s deficit has grown by 25% year-to-date (YTD) as of the end of Q3, shareholder equity has been halved, and book value has significantly deteriorated. At the end of Q3, the company’s book value stood at just over $1.15 per share, less than half its mid-December trading price. Regarding the Saudi PIF, it owns about 60% of LCID shares and may end up owning the company outright before too long. The endgame for Saudi Arabia is to bring automobile manufacturing and jobs to its people.
Ignoring the dilution, Lucid’s balance sheet is in OK shape. The company logged a cash build relative to the prior year’s Q3 and had sufficient cash to sustain operations for nearly a year at Q3’s burn pace. However, the company’s cash is down YTD despite the share sales, inventory is down, current and total assets are down, and liabilities are rising. Total liability is up 30% YTD and is likely to grow because it will be more than four quarters until Lucid is profitable. Investors should expect another round of dilutive actions in 2025.
The Q4 report may provide a catalyst for the stock price. The analysts forecast another quarter of double-digit growth, but there are problems. First, analysts lift their estimates ahead of the release and set the bar high; outperformance is unlikely. Add a sequential decline in revenue and slowing year-over-year growth, and odds are high that the report will be a non-starter. Regarding the analysts' stock price targets, the consensus stock price estimate is above $3 but trending lower, providing a headwind for the market. The revision trend suggests that the fair value is below $3 and may move lower before it starts moving higher. The analysts' trends are unlikely to significantly improve in 2025 without solid indication that demand is strong, production is ramping to meet it, and cash flow is improving.
Aside from the Saudi PIF, institutional activity can not be relied on to help support this market. Institutions other than the PIF own a mere 9% of the stock, and although activity is mixed, the balance is net-bearish for the stock. Additionally, short interest is very high at 30%, making the sell-side headwind robust and potentially insurmountable. In this scenario, shares of LCID stock may rise but will likely set the market up for the next downturn.
EV OEM Shakeout to Result in Industry Consolidation
An EV OEM shakeout is underway, with some going bankrupt and others consolidating with other companies. Lucid is currently in talks with other automobile OEMs, seeking partnerships to help it control costs and expand its presence in the EV market. One possibility is that Lucid shares its advanced power-train experience in exchange for supply chain considerations to capitalize on efficiencies of scale. Rival Rivian (NASDAQ: RIVN) collaborates similarly with Volkswagen. It is also diluting its value for investors.
The article "Is Lucid Group's Stock a Recovery Play or a Risky Bet?" first appeared on MarketBeat.
