Stock Market

For weeks, financial traders placed their bets in anticipation of electric vehicle (EV) manufacturer Lucid Group’s (NASDAQ:LCID) fourth-quarter 2022 earnings report. The initial response to the quarterly release was a steep drop in LCID stock. The selloff appears to be justified by the data, which indicates soft sales and a less-than-ideal capital position for Lucid Group.

As you may recall, Lucid recently announced a $7,500 “credit” on the purchase of select EV models. However, even after the “credit,” Lucid Group’s vehicles are still expensive (the Pure model starts at around $87,000, the Touring starts at approximately $107,000, and the Grand Touring Air sedan starts at roughly $138,000).

So, Lucid Group’s recently released financial report was a litmus test to see if people are willing to buy pricey EVs during a time of high inflation. The results, unfortunately, suggest that the answer is no, and Lucid could continue to encounter problems in 2023.

After a Rapid Rise, LCID Stock Declines Quickly

LCID stock sank 13% in the premarket hours of Feb. 23, the morning after Lucid Group released its quarterly results. Clearly, despite the share-price rally in January, February has been a challenging month for Lucid’s shareholders.

Perhaps, Lucid Group’s investors got ahead of themselves in January. As it turns out, Lucid only produced 7,180 vehicles in 2022. This figure falls far short of Lucid Group’s original prediction that it would produce 20,000 EVs last year.

For this year, Lucid Group expects to produce 10,000 to 14,000 vehicles. But then, there’s a credibility problem here. If Lucid didn’t come anywhere near its original 20,000 EV production target for 2022, why should investors put any faith in the company’s current-year forecast?

Lucid Group’s Poor Sales and Cash Burn Are Problematic

Turning to 2022’s fourth quarter, Lucid Group posted another net earnings loss. However, hardly anyone was surprised by this. Lucid will, most likely, remain unprofitable for the remainder of 2023 at least.

What shocked financial traders the most, I believe, was Lucid’s poor quarterly sales. Wall Street was looking for $314.9 million in Q4 2022 revenue, but Lucid Group’s actual result was only $257.7 million.

Then, there’s the issue of Lucid Group’s dwindling capital position. As of Dec. 31, 2022, Lucid’s balance of cash and cash equivalents stood at around $6.3 billion. A year later, that figure had shrunk to just $1.7 billion. This makes it difficult to remain confident in Lucid Group’s ongoing ability to fund its operations.

So, Is LCID Stock a Buy?

Stock traders’ initial, negative response to Lucid Group’s data release was probably the right one. The company didn’t sell many EVs last year, and Lucid’s quarterly revenue result fell short of Wall Street’s expectations.

It appears that investors may have been too optimistic in January, and reality is setting in now. Frankly, Lucid Group’s capital position is a major concern for 2023. LCID stock could easily continue to lose value throughout the year. While circumstances might change in the future, the stock isn’t a buy right now.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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