Why Lucid Group Is Sinking This Week

Since the close of trading last week, shares of the electric vehicle maker Lucid Group (NASDAQ: LCID) traded roughly 10% lower, as of 9:57 a.m. ET today. The move comes after Lucid reported third-quarter deliveries earlier this week, and received a negative rating from Wall Street.

Third-quarter deliveries disappointed

On Monday, Lucid reported third-quarter deliveries of 4,078 vehicles. That is a record for the company and up 48% year over year, but came up short of Wall Street estimates, which called for nearly 5,000 deliveries.

Image source: Lucid Group.

Analysts and investors expected higher deliveries in the third quarter, due to the expiration of the $7,500 federal EV tax credit. Consumers rushed to take advantage of the deal one last time, so this level of annual growth will likely be a one-time phenomenon.

Following the report, CFRA analyst Garrett Nelson downgraded the stock to a strong sell and a $10 price target, which implies over 50% downside from Lucid's current share price. "While LCID's Y/Y volume increases were impressive on a percentage basis, we were expecting much higher volumes with the September 30 expiration of the federal EV tax credit," Nelson wrote in his research note.

Nelson also noted that to reach Lucid's prior annual delivery guidance of 18,000 to 20,000, the company would need to deliver over 8,000 vehicles in the fourth quarter, which seems unlikely given the company did less than 5,000 in an elevated quarter across the industry.

Management may cut guidance

Given Nelson's remarks above, it's quite likely that management will lower its annual guidance when it officially reports third-quarter earnings. The company trades over a $6.6 billion market cap and lost over $900 million through the first half of the year. I would avoid the stock for now.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.