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Short Sellers Circle as Lucid Burns Cash: Can LCID Survive the EV Storm?

EV fans know which companies are doing well and who are not. Unfortunately, one of the many EV companies struggling as of late is Lucid Group (NASDAQ:LCID). Despite a 60% correction in 2023, investors remain cautious about LCID stock. Lucid’s delivery growth has disappointed because of ongoing production and delivery issues.

High cash burn persists, necessitating continuous external financing. In 2023, operating losses totaled $3.1 billion, widening year-over-year. Q1 2024 saw operating losses of $730 million, hinting at another year of substantial losses exceeding $2.5 billion despite a liquidity boost to $5 billion in Q1.

Short Sellers Abound

Lucid saw unusually heavy options trading on June 24, with 99,267 put options bought — 60% above the daily average of 62,053. This spike indicates a notable change in market sentiment toward Lucid stock.

LCID stock recently carried a high short-interest ratio of 28%, surging over 250 million shares with an average span of 20 days. On June 24, Lucid opened trading at $2.54, marking a modest gain of 2.21% following a 1.19% decline the previous week.

Technical analysis suggests support at $2.49, with resistance at $3.35. Currently, LCID stock remains below its 50-day, 100-day, and 200-day simple moving averages, indicating a bearish trend.

That said, institutional buyers haven’t been shy about coming in to buy the dip on LCID stock in the past. Lucid has seen increased interest from institutional investors like Saudi Arabian Investment Fund, providing crucial funding.

Meeder Advisory Services and Norden Group bought stakes valued at $29,000 and $32,000 respectively in Q1. Heritage Wealth Advisors boosted holdings by 53.3%, now owning 11,500 shares worth $33,000.

Ahead of Tesla? 

Once a pioneer in EV, Tesla (NASDAQ:TSLA) has been facing intense competition with better and more affordable EV options. One of the outstanding competition is Lucid, which will be launching its Gravity SUV shortly. Lucid CEO Peter Rawlinson is confident that the SUV’s tech is years ahead of Tesla.

Tesla has diversified into Optimus Robots, repair lawsuits, AI, and Robotaxis. Peter Rawlinson, Lucid’s CEO and former Tesla Model S Chief Engineer, highlighted Lucid’s battery expertise, proven by Formula E supply and the Air’s 500-mile range, the highest in EVs.

Rawlinson declared Lucid’s achievement of five miles per kilowatt-hour efficiency, a milestone acknowledged by the EPA, a sign of technological leadership in the EV sector.

The company’s Air sedan’s achievement of four miles per kWh suggests the Lucid Gravity might adopt this efficient battery. The company delivered over 1,900 units in Q1 2024, which showed a 40% increase. Rawlinson’s claim of EV tech leadership holds promise for Lucid’s future direction.

LCID Stock Still Looks Like a No-Go

There are certainly plenty of positives bulls can grasp on to consider buying LCID stock at current levels. The thing is, this is still an early-stage EV maker that posted a Q4 gross loss of $252.8 million.

Thus, the company is spending more on manufacturing and delivery than revenue generated. Sales declines exacerbated financial strain. With $4.3 billion in cash reserves, future funding via debt or equity dilution looms to sustain operations, impacting current investor stakes.

Reflecting its financial struggles, LCID stock currently trades at a high price-sales multiple of 8.6 times. Until the company can turn around its declining revenue, negative gross margins, and dwindling cash reserves, this is isn’t a stock most long-term growth investors may want to consider right now.

On the date of publication, Chris MacDonald did not hold (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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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