Is Lucid Stock a Buy Now?

Key Points

• Lucid has $2 billion in debt, and it has substantial losses.

• Tariffs, disappearing EV tax credits, and a potentially slowing economy are not helping matters.

• Lucid has relied on repeated cash infusions to stay afloat, and its leadership has been in flux.

• 10 stocks we like better than Lucid Group ›

When Lucid (NASDAQ: LCID) burst onto the investment scene in 2020, there was a lot of excitement surrounding the company and its high-end electric cars. Some of the excitement was warranted, considering that Lucid's Air sedan went on to become an award-winning vehicle, and its battery technology has set records for the longest distance on a single charge.

But not everything at Lucid is as polished as the exterior of its luxury electric vehicles (EVs). The company is burning through piles of cash, its top leadership is in transition, and EV market headwinds are causing additional difficulties for the company.

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The result has been that Lucid stock is down nearly 97% from its all-time high set in February 2021. To some, Lucid's massive share price decline looks like a buying opportunity, but I believe investing in the stock right now would be a mistake. Here are a few reasons why it's best to leave Lucid stock alone.

Image source: Lucid.

1. It's burning through cash with little to show

Young companies betting on emerging trends spend lots of money as they create new products. But as they burn through cash, they should eventually show signs of significant growth. Unfortunately for Lucid, there are more red flags than milestones.

For one, the company still has significant losses, including a non-GAAP net loss of $0.20 per share in the second quarter. The company's losses on an annual basis don't instill much confidence either, with a loss of $1.04 in 2024.

Just as troubling is the fact that Lucid has substantial debt of $2 billion. Since going public, it has had to borrow money multiple times from its largest backer, the Saudi Arabia Public Investment Fund (PIF). The most recent was a $1.1 billion purchase of convertible notes, which was on top of the $1.5 billion cash infusion it received from the PIF last year.

It's not great to see a publicly traded company continually needing more cash investments so it can keep the lights on. The result has left investors wondering when, or if, Lucid will be able to stand on its own two feet.

2. The electric vehicle industry is facing headwinds

Lucid's financial problems are exacerbated by the fact that the EV industry is facing a difficult environment, with tariffs, a rollback of EV tax credits, and a challenging economic environment.

First, the U.S. Congress recently passed legislation that eliminates the federal tax credit that was worth up to $7,500 for new EVs. The credits end at the end of September, instead of their original expiration date of 2032. While Lucid's vehicles were too expensive to qualify for them, the company was able to take advantage of a leasing loophole to use the credit to lower the cost for its customers.

That change comes on the heels of President Donald Trump's tariffs, which have affected the cost of production for many automakers. Lucid makes many of its vehicles in the U.S. but sources some parts from abroad, like nearly all of its peers. Its management said recently that automotive tariffs will lead to higher costs for the company, and increased prices for customers. Lucid interim CEO Marc Winterhoff said recently: "For American consumers, vehicles are going to be more expensive under the tariff regime. There's no other way around it."

Lucid makes high-end EVs, and its cheapest Air sedan has a starting price of $69,900. That's out of reach for many Americans already. But rising prices could dissuade even wealthy buyers, as the latest economic data shows jobs growth is slowing. In July, the U.S. economy lost 13,000 jobs, and it added just 22,000 in August, far below economists' estimates of 75,000.

Potential EV buyers facing an uncertain economy will be less inclined to start writing checks for an expensive car, and it's all happening as tariffs are driving up prices and the EV tax credits are expiring.

3. Leadership transitions raise concerns

Finally, in the midst of all of these problems, Lucid's management has been anything but a stable force. Winterhoff took over as the interim CEO earlier this year, after co-founder Peter Rawlinson stepped down.

While some leadership changes are normal, the transition comes on top of 11 executives leaving Lucid over the past few years.

When you add this lack of clear leadership direction to all of Lucid's other problems, it's difficult to see a way forward for the company that will make it a good investment any time soon.

Should you invest $1,000 in Lucid Group right now?

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Chris Neiger 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.