- Lucid (LCID) management has lowered its previously forecasted production targets by 40% for 2022.
- The company is uncertain with respect to its deliverables.
- Investors should maintain a cautious outlook on LCID stock.
Lucid Group (NYSE:LCID) stock has been trending down after its fourth-quarter and full-year earnings results as the company slashed its manufacturing targets by 40% due to supply chain and logistics constraints.
The company has also refrained from providing any financial projections after the Securities and Exchange Commission (SEC) probed it for providing misleading estimates and statements at the time of its merger.
LCID stock declined 14% after market hours following the news.
Another reason for the downward movement in stock price is sale of 8 million shares for $180 million by the company’s CEO Peter Rawlinson. This was to satisfy withholding tax and remittance obligations. Although, Peter Rawlinson still hold 52 million shares in the company, the recent selloff has led to a negative sentiment on Wall Street.
Furthermore, LCID stock has a short ratio of 17%, which looks high. There is a possibility of further correction considering the news from the company and the short build-up.
On a positive note, the company’s Lucid Air Sedan has been raved for its longest range, highest voltage and fastest charging ability. An order book of 25,000 appears encouraging. However, significant execution risk remains, making the stock risky over a short-to medium-term time horizon.
Let’s take a closer look at why you should avoid Lucid stock today.
| Ticker | Company | Current Price |
| LCID | Lucid Group | $25.94 |
What’s Happening With LCID Stock?
In the fourth-quarter and full-year earnings releases, the company lowered its production guidance for 2022. Management now expects to manufacture only 12,000 to 14,000 electric vehicles (EVs) in 2022, down from its previous forecast of 20,000 EVs.
Most of this delay is due to some of the company’s suppliers facing issues in providing minor parts like glass and carpets. These supply chain challenges can sustain with the company still in its start-up phase and building its network. Other EV manufacturers (such as Rivian Automotive (NASDAQ:RIVN)) also faced similar supply issues during the quarter.
As Lucid is still at the product launch phase with no meaningful revenues, inventory accumulation at this stage might be difficult. Although the company expects supply chain and logistical issues to ease by the second half of 2022, the interruption in planned production will delay shareholders’ returns.
Although, Lucid has an order book of 25,000 EVs as of February 28, 2022, it would be able to satisfy only half of the orders this year. This would mean 50% decline in previously estimated sales number, elongating the time frame until the company realizes any benefit.
Investors would have to wait for another three to four years before Lucid starts generating any profits.
Another concerning factor has been the recall of 203 out of 300 Lucid Air sedans (or 68% of total) delivered in Q4 2021 due to a minor defect. Although the company promptly fixed the issue, it reflects negative sentiment as the company did not provide any details on the cost and corrective action to address the issue for future deliverables.
Uncertainty in Deliverables
Several deliverables planned have already been delayed. In October 2021, Lucid announced plans to start delivering a 520-mile range Lucid Dream Edition. However, these EVs have not been delivered yet due to supply chain issues.
The company has also postponed production of the Lucid Gravity SUV to the first half of 2024 from the earlier target of 2023.
Furthermore, many uncertainties prevail with respect to the planned expansion of its manufacturing facilities. Earlier, management stated annual capacity at its AMP-1 manufacturing facility will increase from 34,000 units to 90,000 units by 2023. However, in the recent earnings report, manufacturing capacity is expected to grow to 53,000 units by year-end 2023.
Management has also announced expanding the company’s footprints in the Middle East by building a new manufacturing facility in the Kingdom of Saudi Arabia with a capability to manufacture 150,000 vehicles per year. The company seeks to serve Saudi Arabia along with its neighboring countries (Kuwait, Qatar, Bahrain, the UAE and Oman) from this facility. The deal should yield $3.4 billion over 15 years.
Should You Buy Lucid Stock?
Lucid ended the year with $6.26 million in cash and cash equivalents. However, considering its aggressive expansion plans and negligible sales, the company might have to resort to external financing to support its business plans. Given the possibility of multiple rate hikes in 2022, the company might face difficulties in securing debt at a favorable price.
Despite superior EV technology and rave reviews, LCID is yet to prove itself in terms of execution. Several uncertainties revolving around its targeted milestones makes investment in Lucid stock risky.
On the date of publication, Sakshi Agarwalla did not have (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.