Why Lucid Stock Fell Hard Last Month

It was another bad month for Lucid (NASDAQ:LCID) investetors, as shares of the electric vehicle maker plunged 16.1% in September, according to data provided by S&P Global Market Intelligence.

That drop was preceded by Lucid stock falling 34% in August, underscoring how much investors have lost faith in the company lately.

The most recent declines weren't caused by any specific Lucid announcement, and instead appear to be fueled by investors' reaction to rising interest rates and concerns that Lucid can't get its financial house in order.

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Higher rates spur lower sentiment

One likely culprit behind the decline in investment sentiment for Lucid stock last month was the Federal Reserve's decision to raise the federal funds rate. The Fed was reacting to higher inflation, which has been a persistent problem for consumers.

But higher interest rates can hurt companies like Lucid, which are highly dependent on borrowing to operate. It also makes its product potentially more expensive for buyers who want to finance their vehicle purchase.

Lucid investors assessed the implications of last month’s rate hike and didn't like what they saw. Lucid is already burning through cash, and it's highly unprofitable. The company incurred nearly $1.1 billion in operating losses on just $405 million in revenue in the second quarter.

Lucid's new CEO, Silvio Napoli, joined the company in June and has pledged to achieve $1.4 billion in cash flow improvements this year, primarily from lowering inventory costs, operating expenses, and capital expenditures. But the mounting losses, paired now with higher rates, could make Lucid's goals more of an uphill battle.

Making matters worse for shareholders is that the company has issued additional dilutive shares multiple times to raise capital. If it needs to do that again, Lucid's already depressed shares could become even less valuable.

October may not be much better

Lucid released its third-quarter production and delivery numbers earlier this week, with deliveries falling 6.7% from the year-ago quarter to 3,806 and vehicle production declining to 2,954.

The production decline wasn't surprising, considering that Lucid's management eliminated a shift at its AMP-1 factory during the quarter to better align its electric vehicle production with customer demand.

Still, Lucid's results were below Wall Street's consensus estimates for the quarter, which were for 4,687 deliveries and 3,709 vehicles built.

Lucid will report its third-quarter financial results on November 9, which should give investors more insight into how well the company is executing on its cash flow improvements. But given Lucid's current state, and some potential economic headwinds from rising rates, there's little reason to be optimistic right now.

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.