On a day when the broader market rose more than 500 points, Lucid Group Inc. (NASDAQ: LCID) was a conspicuous laggard. Shares of LCID stock fell less than one percent. But it continues the downtrend for the stock, down 30% in the last month and more than 80% in 2022.
One sore point for investors is that the company recently completed a previously announced $1.5 billion equity offering. In a capital-intensive business like electric vehicles (EVs), investors have come to expect start-ups to have to raise money to achieve scalability.
But when the company announced that one of its stated reasons for the cash inflow was to strengthen its balance sheet, it became concerned. Specifically because Lucid has had some recent wins, one of them was one battery agreement of Panasonic Holdings Corporation (OTCMKTS: PCRFY).
When an order is not an order
In 2020 and 2021, several EV companies, including Lucid, went public. These companies used one metric to pique investor interest: the number of reservations they had. This represented consumers who put up a bond on one of the company’s cars. It also gave companies like Lucid the ability to pinpoint potential revenue.
But potential orders are not the same as actual orders. Lucid reports that it will fall significantly short of meeting its annual goal of delivering 6,000 to 7,000 vehicles.
And consumers are starting to cancel their orders for unclear reasons. In the company’s most recent earnings report reservations were disappointing by 3,000 vehicles. While not all were cancellations, internal emails showing that the company is more than a little concerned about cancellations becoming a concern.
Should this influence your decision to buy LCID stock? Think about it this way. When company insiders sell their company’s stock, it is seen as a negative sign. However, there are many reasons insiders might sell a stock, and most of them have nothing to do with their belief in the company’s prospects.
It’s possible (and I should put that in air quotes) that the same logic applies here. There can be many reasons for customers to cancel their order. Inflation remains high. Job losses are increasing. Depending on how you look at it, the economy is already in recession or will soon be. There are many reasons why customers cancel a commitment for an EV costing more than $100,000.
But a cancellation is still a cancellation. And that could be a signal that the EV market is facing supply and demand issues.
Is EV adoption the Slam Dunk it appears to be?
Recent advertisements suggest that the mass adoption of electric vehicles is already here. That may be closer to reality in major metropolitan areas. I know that in my corner of the small town in the US, that is not yet the case.
One of the reasons, of course, is a lack of available vehicles. But it also goes deeper. Other than one Tesla charging location, there is no established charging infrastructure. And that’s not an isolated reality in my little corner of the world.
Two December news reports suggest automakers may also believe this to be the case. First, Toyota Motor Corporation (NYSE:TM) president Akio Toyoda said there is a silent majority in the auto industry wondering if the industry should continue Excluding EVs.
Second, in its annual survey of 900 drivers, KPMG, the international consulting and accounting firm, revealed growing pessimism about electric vehicle adoption. This was exacerbated by rising inflation and supply chain concerns.
However, the survey also found that 50% of executives still believed that EV adoption would increase significantly by 2030. However, Toyoda said Toyota is still not making a firm commitment to building out an all-electric fleet as the right solution. has yet to be determined.
LCID share could fall even further
Depending on your perception, EV adoption is either taking longer than expected or it is well on track. Whatever your opinion, it will take many years, if not many decades, for the mass adoption of electric vehicles to become a reality.
That doesn’t mean LCID stocks don’t have a path to success. Lucid Group assembles and supplies vehicles. That’s more than many SPAC companies can say. But it needs a lot of things to go right, both in terms of supply and demand. And with stocks trading at more than 20x sales, it’s more likely to fall than rise in a risk-free market.