Is it advisable to purchase Lucid stock while its value remains under $3?
Electric vehicle (EV) sales are surging in the U.S., largely due to establishment automakers launching electrified models and up-and-comers like Lucid Group (LCID, -4.13%) producing impressive EVs. The gradual metamorphosis of the automotive industry toward EVs is evident in the latest vehicle sales statistics, which reveal electric vehicles account for approximately 9% of total U.S. vehicle sales, up from around 8% the previous year.
However, several electric vehicle start-ups, including Lucid, are encountering challenges in scaling production and lowering costs to achieve profitability. Let's delve into Lucid's current predicament, which might make investors ponder twice before investing in this EV stock, despite its current trading price of about $2.69.
In the Vicinity of Lucid
I've previously penned assessments of Lucid's challenges, so let's begin with what Lucid is doing correctly this time around. The company has developed a remarkable EV sedan, landing it on Car and Driver's 2025 10Best list, earning the 2024 Best Luxury EV recognition from Top Gear, and being crowned MotorTrend's Car of the Year in 2022, among other accolades.
Lucid manufactures beautiful, high-end automobiles and has recently commenced production of its Gravity SUV, which may potentially expand its customer base.
Nonetheless, having an excellent product isn't necessarily an indication of a great investment opportunity. One of the initial warning signals is that Lucid's losses swelled in the third quarter (ending Sept. 30). The company recorded losses of $992 million, significantly larger than its loss of almost $631 million in the equivalent period last year. Moreover, vehicle production increased a modest 16% year over year in the quarter, to 1,805 vehicles. Lucid's management predicts it will manufacture 9,000 vehicles this year, a negligible increase from the 8,428 vehicles it produced last year.
While it's expected for EV start-ups to lose money temporarily, continually expanding losses and the need to raise additional funds through a public offering, diluting shareholder value, ought to raise eyebrows. Lucid also needed to secure extra funds recently, as Saudi Arabia's Public Investment Fund (PIF) invested an additional $1.5 billion in the company. These additional funds should sustain Lucid financially through 2026.
The combination of requiring further financing, diluting shares, and increasing losses make me skeptical that Lucid's financial picture is improving. When factoring in the company's minimal vehicle production increase this year, the negatives outweigh the positives.
Lucid stock is not a buy
I acknowledge that some investors might view Lucid's $2.69 stock price (as of this writing) and assume there isn't much to lose by acquiring a few shares. Venturing into riskier investments containing a bit of capital is neither wrong nor odd. However, it's important to bear in mind that Lucid's stock is currently pricey.
Lucid's stock carries a price-to-sales ratio of 8.1, whereas fellow EV start-up Rivian Automotive boasts a P/S ratio of merely 3.1. This premium, coupled with increasing losses and the company still battling to find its production stride, indicates it might be wiser to avoid buying Lucid stock at present.
Again, Lucid's products aren't lacking, but investors should tread cautiously before wagering on this unproven EV stock until it can significantly improve production and reduce expenses.
Given Lucid's financial challenges, investors might want to consider alternative ways to allocate their money in the world of finance. For instance, they could explore other promising electric vehicle stocks with more attractive price-to-sales ratios.
Moreover, some investors might want to consider diversifying their portfolio by investing in non-automobile sectors, such as renewable energy or technology, where there are numerous profitable opportunities.
