Lucid Group (NASDAQ:LCID) has been a penny stock for months, but LCID stock initially appeared to have found a floor within the upper range of “penny stock territory” (between $4 and $5 per share). Shares in this EV manufacturer have plummeted in the past month. The stock has fallen 44.5% in a month, from $4.75 to $2.65 per share.
Contrarians may see this as a great chance to buy the EV contender at a low cost. However, that shares have sunken so far, so fast should give even those with a high level of risk-tolerance some pause. Considering the reasons behind the continued sell-off, it’s clear that a continued slide, rather than epic recovery, is far more likely, as I’ll explain below.
Two Reasons Why the LCID Stock Exodus has Picked Up Momentum
If you haven’t been following Lucid, you may wonder why, suddenly, the LCID sell-off has accelerated. Shares have been in freefall mode, for two reasons. First, overall sentiment for EV stocks has taken a hit since the start of the year.
Optimism about interest rate cuts helping to drive an EV adoption growth resurgence has cooled. This has given way to renewed fears of an “EV slowdown,” and of underwhelming results for EV contenders across-the-board, including market leader Tesla (NASDAQ:TSLA), as I discussed recently.
Second, and perhaps more significant in understanding recent LCID stock price action, the latest news about this one-time supposed “Tesla killer” underscores how Lucid Group is at best an “EV also-ran,” and at worst, an “EV lemon.” This news includes a horrendous quarterly deliveries report, as well as a recall of thousands of Lucid’s Air luxury EV sedans.
Following this news, and the subsequent sell-off, there’s one clear takeaway. Lucid is failing to move even one step forward. Arguably, it’s moving two steps back. With this, while not for certain, it’s very possible that even this stock’s most die-hard fans are throwing in the towel.
No End in Sight for Lucid’s Downward Spiral
Don’t get me wrong. LCID stock has poor prospects, but it’s not as if it’s at risk of experiencing a total wipeout. That’s arguably a massive risk with some of the even lower-quality EV stocks, like Mullen Automotive (NASDAQ:MULN).
With the financial backing of Saudi Arabia’s Public Investment Fund (or PIF), Lucid is likely to continue obtaining the cash infusions needed to sustain operations, and to finance the company’s further buildout of its manufacturing infrastructure.
If the company finally gives up on the North American market, it may find success in the Middle East. Lucid has a production facility in Saudi Arabia. The Saudi Government has agreed to buy as many as 100,000 Lucid vehicles. As a first-mover in the region, Lucid could gain a competitive edge. Yet even if Lucid somehow finds success, a niche manufacturer of ultra luxury EVs, don’t count on this scenario leading to an eventual rebound for LCID.
How come? PIF’s capital infusions are keeping the lights on, but they are coming at the cost of shareholder dilution. Assuming this continues, over time PIF will gain greater ownership of the company. Outside investors could see the value of their positions get further watered-down.
Bottom Line: Sell/Avoid LCID
Again, Lucid is far from reaching the end of the road in terms of its existence as a business. However, LCID as a stock has reached the end of the road in one respect: as a worthwhile investment.
Although the company could revamp its growth strategy, and figure out a way to become a profitable enterprise, the dilution factor is likely to limit long-term upside potential. In the meantime, continued bad news (like quarterly delivery, production, and financial results) may keep on scaring off what remains of this stock’s fanbase.
Hence, consider it best to sell/avoid LCID stock, even if you have no qualms about going against the grain. The crowd may have been erroneously bullish on shares on the way up, but it’s best to follow their lead on the way down.
LCID 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.