EV Showdown: Why Lucid’s Risky Bid to Take on Tesla Won’t End Well

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Lucid Group (NASDAQ:LCID) stock faces significant challenges as its CEO plans to take on Tesla (NASDAQ:TSLA), raising concerns for investors.

Despite a recent partnership announcement with another automaker, Lucid Group’s stock remains risky and not a high-confidence pick. 

The company’s public offering and move into China’s EV market raise concerns for long-term investors.

That said, will Lucid Motors’ stock be able to challenge Tesla in the luxury EV market?

What’s Going on Between Lucid and Tesla?

Lucid faces tough competition with Tesla as its CEO, Peter Rawlinson, aims to challenge Tesla’s dominance. Lucid is ambitious, entering China’s EV market and partnering with Aston Martin for EV power train and battery systems.

Lucid Group’s deal with Aston Martin provides a $232 million capital infusion, but that might not be enough for the company’s cash-burning issues. Lucid’s CEO, Rawlinson, appears confident about competing with Tesla, but it will require significant capital, especially for advertising and marketing. 

However, Lucid’s current capital position is not strong, and its rapid cash burn is concerning. An additional risk for Lucid Group is Rivian’s adoption of Tesla’s EV charging standard. 

While this doesn’t make Rivian’s stock a buy, it is a smart move for the company, as it avoids the need to build its own charging network and can leverage Tesla’s extensive infrastructure.

In contrast, Rawlinson is opposed to Tesla’s charging standard, stating that a standard should be open to the public, not controlled by Tesla. He believes that it should be future-proof, reliable and open for everyone’s use. 

However, given Lucid’s risky expansion plans into China and its intention to compete directly with Tesla’s popular EVs, this stance may be considered stubborn and unwise.

LCID Fell Short in Deliveries

Lucid Group reported delivering 1,404 Air sedans in Q2, lower than Wall Street’s expected 2,000 deliveries, raising demand concerns.

Lucid Group reported producing 2,173 Airs in the period, down from 2,314 in Q1, causing shares to drop over 11%. The Air luxury sedan faces demand concerns despite being well-regarded and having the longest EV range in the U.S., with prices starting at $92,900 before incentives.

In February, Lucid Group’s production forecast of 10,000 to 14,000 Airs in 2023 surprised analysts, given its size relative to the company’s reservation count. 

CEO Peter Rawlinson’s focus on marketing hinted at struggles to convert reservations to orders. The company cut about 1,300 jobs in March. However, Lucid’s deal with Aston Martin to supply EV technology and receive $232 million and a 3.7% stake has provided some positive news. Both companies have Saudi Arabia’s Public Investment Fund as an investor.

LCID Stock Remains Risky

The major risk for Lucid Group is Rawlinson’s attitude towards Tesla, a stronger competitor. It would be beneficial if Lucid adopts Tesla’s charging standard.

Without this, a positive outcome for Lucid seems unlikely. It is advisable to hold a minimal position in LCID stock or avoid it altogether.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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