Is Lucid's Reverse Stock Split a Sign of Desperation?

Key Points

• Lucid announced a preliminary filing for a reverse stock split.

• Typically, reverse stock splits are done by companies in financial distress.

• Lucid has no immediate threat of being delisted.

• 10 stocks we like better than Lucid Group ›

While all the headlines screamed about Uber Technologies' (NYSE: UBER) partnership with Lucid Motors (NASDAQ: LCID) and Nuro, an autonomous driving technology start-up, and the multimillion-dollar investment between them, there was a separate development that nearly everyone overlooked: a potential reverse stock split.

Let's take a look at what exactly a reverse stock split does, what it doesn't do, and what it means for Lucid investors going forward. Is this a desperate move?

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Fair or foul?

EV maker Lucid announced Thursday that it filed a preliminary proxy statement with the Securities and Exchange Commission (SEC) regarding a special stockholders' meeting to authorize the board of directors to complete a reverse stock split of the company's Class A common stock at a ratio of 1-for-10 (1:10).

Let's break this development down into what it means, and what Lucid hopes to achieve with its potential reverse stock split.

A 1-for-10 reverse stock split simply means Lucid will reduce its outstanding shares by a factor of 10, essentially combining 10 old shares into one new share. The stock price will then be multiplied by 10. In the simplest example, a company with 100 shares with a $1 stock price will reverse split into 10 shares, valued at $10 per share.

It's important to note what this doesn't do, which is change the value of what investors own. While the stock price changes, proportionally to the reduction in the number of shares, the company's market capitalization will remain the same, as will the investors' voting power and position value.

Now to the question on investors' minds: Is this a sign of desperation? Not necessarily, because there are a few reasons that can drive a reverse stock split. It's true that typically a reverse stock split is done by a company in danger of being delisted from major exchanges such as the NYSE or Nasdaq -- both require companies to maintain a minimum share price of $1.00.

If a company's stock price falls below that threshold for 30 consecutive trading days, it receives a deficiency notice and is given a set period to raise its price -- perfect for a reverse stock split. But as we know, Lucid is currently trading at roughly $3.15 per share, and its 52-week low was $1.93 per share. While that's a little close for comfort, especially given the gloomy electric vehicle market currently mitigating tariff impacts, it's not in immediate danger of being delisted.

Lucid's Gravity electric SUV. Image source: Lucid.

There is also potential upside for Lucid's potential reverse stock split, as many companies try to push the price of their stock higher to entice big institutional investors. Many institutional investors and mutual funds have policies against owning positions in a stock with a price below a minimum value -- raising the price could enable more large investors to jump into the company's stock, pushing it higher. This is not what typically happens, but Lucid's goal is to make its stock more attractive to more investors.

What it all means

At the end of the day, the market generally views a reverse stock split negatively. It's often a company in financial distress with a falling stock price and potential to be delisted -- not qualities of a great investment.

Lucid is still burning through tons of cash, it's still slowly accelerating deliveries -- although consistently, as it's turned in seven straight quarters of higher deliveries -- and much of its future hinges on the success of its new electric Gravity SUV and its upcoming midsize platform that will underpin at least three more electric SUVs.

Currently, Lucid has the liquidity to fund operations flawlessly through the second half of 2026, and while the market doesn't tend to favor reverse stock splits, this shouldn't raise many red flags for Lucid investors that they weren't already aware of. Lucid is simply a high-risk, high-reward stock, and big swings in its price are inevitable. Invest accordingly.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.