Predictions of Lucid Motors’ (NASDAQ:LCID) death are somewhat exaggerated. That’s not the same as saying you should invest in LCID stock.
CEO Peter Rawlinson, formerly with Tesla (NASDAQ:TSLA), succeeded in his primary goal. He made a great luxury electric in the Lucid Air sedan. It’s the luxury car of the year and it’s coming to a city near you.
But the electric car market has moved on. The high end is saturated. Success today means having an ample supply of batteries, an ability to scale production into the mass market. Tesla now has cars selling at the American market’s median price. Europe wants lower cost, mid-market cars. China’s electric automakers are prepared to deliver them.
Saudi Support Keeps LCID Stock Afloat
What’s keeping Lucid going is the support of the Saudi government’s Public Investment Fund (PIF), which controls the company with a 61% stake. The startup benefits from financial backing and support in its production plans.
Plus, you can argue that the Lucid Air is designed for the Saudi market. It’s a sedan, not a pick-up truck. The question has always been, where else can it sell? It’s a billionaire’s ride. That’s not a huge market.
The current Lucid Air is made in Arizona, but the company says it will start rolling out Saudi-made vehicles in September 2023. Any delays in that timeline could be detrimental to LCID stock.
But Lucid Motors Is a Zombie Company
Beyond the Air there’s not much to Lucid. One analyst calls it a zombie stock. It has just enough cash to get through another two years, and its expectations are unrealistic.
Privately, many shareholders have lost patience. The company produced 2,300 cars during the first quarter but delivered just 1,400. A full earnings report is due May 8, as this is being written.
But the news won’t be good. Already, Lucid has replaced three directors. The newcomers include Sherif Marakby, who is an executive with contract manufacturer Magna International (NYSE:MGA), former Piaget CMO Chabi Nouri, and international marketer Ori Winitzer. This tells me Lucid is turning away from the U.S. market, a move that makes sense.
Were it not for Saudi backing, those who are predicting bankruptcy for Lucid would probably be right. Tesla’s recent price cuts are cutting the bottom out of Lucid’s market.
The Bottom Line
Lucid will survive, but you won’t profit from that.
The company is having big problems with its supply chain, and demand for its key product is falling. Making charging stations compatible would help if Lucid were a serious competitor in the U.S. market. It’s not.
The main hope is that the Saudi government will buy out the 39% of Lucid it doesn’t own, including public shareholders. But if that happens, the price they pay will be based on reality, not on inflated expectations. They can easily let the price of Lucid keep falling toward zero, and swoop in at the last minute. You won’t be made whole.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.