Lucid stock price analysis: a bargain or a value trap?

Lucid Group (NASDAQ: LCID) stock price has been in a strong freefall this year as concerns about its cash burn continued. It has crashed by over 35% this year, joining other popular EV companies like Tesla, Rivian, and VinFast that have plunged by double digits. This plunge has brought its market cap to about $6.3 billion, down from a record high of over $111 billion.

Lucid Group’s concerns remain

Lucid Group, like other electric vehicle companies, is going through a deep meltdown as concerns about demand remain. The key challenge is that the industry has become highly saturated, leading to a significant drop in margins.

The most recent financial results showed that Lucid Group is still incinerating cash. Its revenue rose to $172.7 million in the first quarter from $149.4 million in the same quarter in 2023. This happened as the company delivered 1,967 vehicles, a 40% increase from the same period in 2023. 

Its net loss came in at over $680 million, meaning that the company has lost over $3.5 billion in the last five quarters and this trend is set to continue. The implication is that Lucid Group may need to raise additional capital in 2025 to boost its balance sheet.

Lucid has already raised $1 billion this year in a private placement to an affiliate of the Public Investment Fund. As a result, it ended the last quarter with over $3.9 billion in cash and short-term investments. It has about $5 billion in total liquidity.

Therefore, Lucid Group’s valuation goes like this. The company has a market valuation of over $6.3 billion against total cash of about $5 billion and long-term debt of almost $2 billion. All this gives it an enterprise value of about $5.23 billion.

Still, some positive things about Lucid could justify its current valuation. First, the valuation is significantly lower than its peak of over $111 billion, which is a good thing since its peak figure was not realistic.

Second, the company is targeting a premium customer since its vehicles start at $82,525 and the most expensive one can go for over $250,000. I believe that there is a market for these vehicles, especially now that American stocks have jumped to a record high. 

Third, the company is mostly owned by Saudi Arabia, a country that is swimming in cash. As a key part of its Vision 2030, there is a likelihood that it will continue getting access to cheap cash. It will also become a big part of the Saudi Arabian government purchases.

Further, its vehicles have received significant reviews. In a recent review, MKBHD said that the Lucid Air Sapphire was the best sedan ever made. MKBHD is one of the most followed tech and vehicle reviewers in the world.

However, the biggest challenge for Lucid is how to turn this popularity into profits. In the recent earnings call, the CEO elaborated that the company will only get profitable past 2026, meaning that this cash burn will continue.

Lucid Group stock price forecast

LCID chart by TradingView

The daily chart shows that the LCID stock price has moved sideways in the past few weeks. Along the way, the stock has formed a symmetrical triangle pattern shown in red. This triangle is nearing a confluence level and is consolidating at the 50-day and 100-day moving averages.

Meanwhile, the two lines of the MACD indicator have formed a bearish crossover while the Relative Strength Index (RSI) has crashed below the neutral level. Therefore, I suspect that the stock will have a bearish breakout as sellers target the key support level at $2.32, which is about 15% below the current level.