Lucid Stock’s False Dawn: Why the LCID Rally Is Doomed to Crash

Stocks to sell

As of this writing, Lucid Group (NASDAQ:LCID) is rallying higher, but this latest Lucid stock rally has nothing to do with anything company-specific. Shares are moving higher because of positive news for a key competitor in the space.

We’re talking about Volkswagen’s (OTCMKTS:VWAGY) plans to invest up to $5 billion into Rivian Automotive (NASDAQ:RIVN), as part of a joint venture between the German automotive giant, and the U.S.-based electric van and truck startup.

LCID and its peers are rallying in response, on speculation that other early-stage EV makers will soon be yielding similar offers. Yet while anything’s possible, we wouldn’t bank on this fading EV contender getting extended such an opportunity.

Instead, the company is likely to stick with its existing “dance partner,” which in turn strongly suggests that LCID’s downward spiral will carry on, once this latest news for Rivian enters the rearview mirror.

Lucid Stock: No New Partner Waiting in the Wings

Lucid Group already has a financial and strategic partner. Saudi Arabia’s Public Investment Fund is Lucid’s majority shareholder, with a 59.6% stake. Lucid has also moved into the Saudi EV market, setting up manufacturing and sales operations there.

Saudi Arabia’s involvement doesn’t preclude another partner coming on board. In fact, PIF, after investing billions into the company, with little in the way of financial return thus far, may not want to up the ante with another capital infusion. Much like with RIVN stock, forming a similar partnership would likely provide a boost for LCID stock.

However, is there a major automaker waiting in the wings? We’re doubtful. Yes, part of Volkswagen’s interest in Rivian is getting its hands on Rivian’s EV technology. Lucid has proprietary EV technology of its own. Previously, it has licensed it out to British automaker Aston Martin.

However, Rivian has also cultivated a fan base for its vehicles. In contrast, Lucid has gained little traction, as seen from its weak vehicle delivery numbers. While other smaller EV makers may be interested in licensing deals, we just don’t see an global automaker stepping up to invest billions into this floundering upstart.

The Downward Spiral Shall Continue

Assuming that automakers in the U.S., Europe, China, and Japan pass up on the opportunity to make a big bet on LCID stock, expect the downward spiral that has sent shares to the stock market junkyard to carry on.

As we’ve pointed out in past articles about Lucid, the following shall continue. First, delivery volume will remain at levels far too low for the company to reach profitability. The fact Lucid has downsized its workforce, and hence likely reduced production capacity, underscores the chances of this happening.

Second, as sales remain too low, high operating losses and cash burn will carry on as well. This means a further depletion of Lucid’s cash position, which at some point will cause the need for another capital infusion.

Granted, if this downward spiral continues, at a low enough price strategic investors could emerge to seize the opportunity at a bargain basement price.

However, if LCID becomes cheap enough, what’s to stop PIF from buying out minority shareholders at a scant premium, then forming an automaker partnership, maximizing its upside? As before, Lucid Group offers a “lose lose” proposition to outside investors.

The Verdict: Stay Away from This Still-Bad Situation

A rising tide lifts all boats, but the rising tide of Rivian, due to the Volkswagen deal, has already started to recede. As it’ll take time to see whether this deal really changes the story for RIVN, shares are likely to cough back their latest gains.

The same applies here, for lifted boats like LCID. The moderate-sized rally could fade, with shares quickly getting back on a downward trajectory.

As attention turns back to Lucid’s still-unsolved demand and profitability issues, not to mention its still-high dilution risk, a sliding down to $2 per share, then on to $1 per share or less, remains very likely.

While you’re free to consider opportunities among any of the publicly-traded EV stocks out there, take heed of our warning, and stay away from the still-bad situation with Lucid stock.

Lucid stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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