Lucid Group (NASDAQ:LCID) rallied alongside other meme stocks when Roaring Kitty returned to social media. The meme lord Keith Gill reiterated his support for GameStop (NYSE:GME) despite all signs a trade in the video game retailer will be a disaster.
Worse, while the stock-buying frenzy caused GME shares to triple in value, it also brought along other lesser meme stocks along for the ride. Luxury electric vehicle manufacturer Lucid was one of them and its stock is up 16% from its 52-week lows.
But don’t buy into the hysteria. The bump in Lucid stock won’t hold and the EV maker will drive off the road again.
A Rapidly Shrinking Pond
The market for electric vehicles is skidding to a stop. Whether it is high prices, high interest rates or inflation hitting consumers hard, growth in EV sales is slowing. Although a record number of EVs were sold last year demand is evaporating.
That’s a tough environment to sell luxury cars into. Mercedes-Benz (OTCMKTS:MBGYY), for example, saw EV deliveries fall 8% in the first quarter causing the automaker to walk back its EV target.
Previously it said it would be all-EV by 2030 but now hopes to hit 50% by the second half of the decade. Look for it to reduce that even further in the years ahead.
Yet Mercedes isn’t alone. General Motors (NYSE:GM), Ford (NYSE:F) and others are stepping on the brakes, too, and putting more effort into hybrid vehicles.
The vast majority of car buyers are indicating they aren’t ready to give up on gasoline-powered vehicles just yet.
Options that offer them new technology with the reliability and availability of fossil fuels is preferred. It is why hybrid vehicle sales are soaring and Toyota Motor (NYSE:TM) is the only EV stock investors should buy.
Toyota sold 3.4 million hybrids last year, up 31% from the 2.6 million it sold in 2022. It quickly became the world’s biggest hybrid vehicle manufacturer and is why other automakers are chasing it now.
Sitting in a Traffic Jam
Lucid can’t sell any EVs either. Starting at just under $70,000 there is little reason why. But luxury EVs are a niche market in an already niche industry. It can only hope to capture a small fraction of the overall demand for EVs. As noted before, that demand is shrinking. Not even Tesla (NASDAQ:TSLA) is moving many cars.
The EV maker had to slash prices on its cars to clear out the congestion of vehicles sitting on dealer lots. It is what allowed Lucid to deliver 40% more cars in the first quarter compared to last year. Still, it has a massive inventory of unsold EVs remaining.
It means Lucid will need to keep cutting prices to clear out the backlog before it can bring its latest models to market. Dealers will want incentives before they start taking on new inventory.
Since Lucid began manufacturing EVs in 2022, it has produced over 17,300 vehicles. It has sold less than 12,000 of them, and that includes the 1,967 vehicles it delivered in the first quarter. With thousands more of its luxury cars still gathering dust, Lucid will be hemorrhaging cash for a long time to come.
The Bottom Line on Lucid Stock
The only reason Lucid Group stock hasn’t fallen to $0 is because of the constant cash injections it gets from Saudi Arabia’s sovereign wealth fund. Because the kingdom is trying to jump-start an auto manufacturing industry it is propping up Lucid. It’s the one reason you shouldn’t short Lucid stock.
Lucid has over $5 billion in liquidity available to it. That will keep it on life support for a number of years. But with the EV maker losing substantial sums on every car sold, it will eat through that largesse eventually.
When a stock jumps for no reason other than a meme stock rally, it shows there is no support underneath the business. Buying the stock now is not investing but gambling. There is nothing to show Lucid Group can turn its business around.
So while the stock has enjoyed a bump from traders, don’t you buy into it. Continue to avoid Lucid stock at all costs.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.