Is Lucid Stock a Buy Ahead of 1-for-10 Reverse Stock Split?

Key Points

• Lucid is about to conduct a 1-for-10 reverse stock split.

• Reverse stock splits are often signs of trouble, but Lucid's case is a bit different.

• Lucid is aiming to ensure it can continue to raise cash from many sources.

• 10 stocks we like better than Lucid Group ›

Electric vehicle maker Lucid Group (NASDAQ: LCID) is about to execute a reverse stock split, in which it will exchange 10 of its existing shares for one new share. The expectation is that the new shares will trade at 10 times the old shares' price, as they will represent the same ownership stake in the company.

Lucid's planned reverse split will take effect after the market closes on Friday. Here are the details, a look at why Lucid is doing this, and some thoughts on the big question: Will be this be a bullish catalyst for the long-suffering electric vehicle stock?

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Lucid is currently scaling up production of its Gravity luxury SUV. It expects sales volumes to jump in the second half of 2025. Image source: Lucid Group.

Reverse stock splits aren't always bullish, but Lucid's might be

Reverse stock splits aren't generally bullish. They're typically performed by companies whose share prices have declined sharply, often to ensure that their shares remain listed with stock exchanges that require a minimum stock price of $1.00.

Lucid isn't quite in that territory yet. As I write this on Thursday, Lucid's shares are trading a bit over $2. But its board of directors recommended a reverse split anyway, and it was approved by shareholders earlier this month.

Why is Lucid doing this? Here's what it said in its regulatory filing ahead of that shareholder vote:

"The Board believes that a reduction in the number of outstanding shares, coupled with an increase in the per share price, would enhance the market perception of our common stock, particularly among institutional investors and other sophisticated market participants."

The filing explained that "because of the trading volatility often associated with low-priced stocks," many institutional investors and brokerage firms have internal policies that restrict their ability to buy low-priced stocks or to recommend them to their clients.

In recommending that shareholders vote for the reverse split, Lucid's board argued that raising the price of its stock via the reverse split will help the company access capital markets -- or put another way, it'll help ensure that big investors and Wall Street analysts are able to buy and recommend Lucid's shares.

How Lucid's reverse stock split will work

Investors holding Lucid's shares as of market close on Friday won't need to do anything to participate in the reverse split. As of 5 pm Eastern time on Friday Aug. 28, after the U.S. markets are closed, every 10 Lucid shares will be exchanged automatically for one new share.

Lucid's share price will also be adjusted automatically. Assuming there are no technical snags (sometimes there are), Lucid's shares will open trading on Tuesday morning after the Labor Day holiday at the new price.

That new price will be ten times Friday's closing price, plus or minus any changes that may have happened in off-hours trading before the market opens on Tuesday morning.

Will this reverse stock split be bullish for Lucid's stock?

Reverse stock splits can be a sign that a company is in deep trouble. Often, a company undertaking a reverse split has seen its stock decline sharply -- and it may think it won't be be able to turn that trend around with fundamentals alone. That isn't generally bullish.

This is a somewhat different situation and it might have a happier result.

Lucid is a money-losing maker of luxury electric vehicles at a moment when investor enthusiasm around electric vehicles is at a low point, but it isn't in immediate danger of running out of cash. It had $3.6 billion in cash as of the end of the second quarter, plus another roughly $1.3 billion in available credit lines.

That should be enough to get it through 2026. And there's more cash on the way: Lucid just completed a deal under which Uber Technologies (NYSE: UBER) will invest $300 million as it prepares to build a batch of luxury robotaxis for the ride-hailing giant.

Assuming that Lucid continues to execute on its plans to increase sales volume and launch a new lower-cost model late next year, this reverse split will probably turn out to be a good idea. It should keep Lucid's shares well clear of penny-stock territory, ensuring that big investors can continue to invest without concerns from their internal monitors.

Long story short: Lucid's reverse-stock split is unlikely to send shares soaring in the near term, but it should make things a little bit easier for the company over the next couple of years -- and that's likely to have bullish effects over time.

I don't think you absolutely need to buy today to enjoy those effects. But if you like the stock, it probably wouldn't hurt.

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John Rosevear 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.