Is Lucid Under $7 a Bargain or a Trap? Here's the Honest Answer.

Lucid Group (NASDAQ: LCID) is an electric vehicle (EV) manufacturer known for its high-performance luxury electric cars that compete with Tesla and Rivian Automotive. For long-term Lucid investors, however, it's been a rocky road with the stock down a stunning 99% from its all-time high in late 2021.

Now, with shares off 44% even since the start of the year and trading near an all-time low, this may look like a bargain stock. However, before you buy, consider the following.

Lucid Group is burning through cash

Lucid Group has struggled since its initial public offering (IPO) nearly six years ago. The company faces high cash burn as it rolls out new models and ramps up production capacity. In the first quarter, Lucid racked up an operating loss of $989 million, up from a $691 million loss in the same quarter last year. Meanwhile, its free cash flow was negative $1.44 billion.

The EV maker has struggled with high cash burn amid elevated production costs and falling demand. The company, backed by Saudi Arabia's Public Investment Fund, has repeatedly raised capital to support its business. Lucid has consistently tapped into equity markets for funding, and since its IPO, its shares outstanding have more than doubled, from around 161 million to 370 million, diluting long-term shareholders.

LCID Free Cash Flow data by YCharts

It recently expanded its partnership with Uber

Lucid has its work cut out for it and is taking steps to improve profitability. For one, the company is working to reduce costs, downsize its workforce, and lean into its more affordable offerings with mainstream appeal. The company is leaning into midsize EVs, targeting a starting price below $50,000.

Another key development for Lucid is its expanded partnership with Uber Technologies. In April, Uber increased its purchase commitment to at least 35,000 Lucid vehicles designed exclusively for its future global robotaxi service, which is expected to begin commercial operations by year-end. Alongside this commitment, Uber is investing an additional $200 million in Lucid, bringing its total investment in the EV automaker to $500 million.

This expanded partnership coincided with a major capital raise totaling approximately $1.05 billion, including a $550 million investment from an affiliate of Saudi Arabia's Public Investment Fund and a $300 million public offering of common stock. Following the capital raise, Lucid has $4.7 billion in its coffers, which it believes will be sufficient to fund its operations through the second half of 2027.

Image source: Getty Images.

Lucid still has to prove itself

Lucid stock is down 99% from its all-time high and is trading under $6 per share, making it look like a bargain compared to its historical prices. But that's not the case. The company continues to burn capital and has repeatedly diluted shareholders to fund its operations.

The EV maker has its work cut out for it to ramp up production, expand its offerings, and improve the economics of its business. For these reasons, I would continue to avoid Lucid Group stock until its situation improves.

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