Will this be a turnaround year for electric vehicle (EV) manufacturer Lucid Group (NASDAQ:LCID)? Don’t count on a rebound, as the data indicates soft demand for Lucid Group’s vehicles. As Lucid struggles to compete with more famous and well-capitalized EV makers like Tesla (NASDAQ:TSLA), financial traders should prepare for LCID stock to decline over the coming months.
This isn’t to suggest that Lucid Group is immediately headed toward bankruptcy. The company is making progress in some respects. For example, Lucid recently expanded its market presence in Europe by opening a retail location in Norway.
That’s fine, but long-term investors should consider the big picture. Does the balance of EV supply and demand favor Lucid Group? If the answer is no, Lucid’s loyal shareholders might be in for a bumpy ride this year.
Supply-Demand Balance Doesn’t Favor LCID Stock
AJ Bell analyst Danni Hewson recently made a good point about the “double whammy” that EV startups are facing now. First of all, due to competition and interest-rate hikes, “money ain’t so cheap anymore.”
On the other hand, inflation is “creating a situation where a consumer is thinking hard about the choices that they make now.” This certainly sounds like a no-win situation for an EV manufacturer like Lucid Group, which has to compete against Tesla and other giant automakers.
Supply-chain disruptions were a major issue in 2022, but now companies like Lucid Group have to deal with too much supply and insufficient demand. Lucid reported “over 28,000” vehicle reservations as of Feb. 21, compared to “over 34,000” in November. So, that’s not a good sign.
Lucid Group’s EV Credit Probably Won’t Help Much
It’s also troubling that Lucid Group guided for 2023 production of just 10,000 to 14,000 vehicles. That’s far short of the analysts’ consensus forecast of 21,000 vehicles.
Furthermore, the company only delivered 1,932 vehicles during 2022’s fourth quarter. In other words, Lucid Group appears to be caught in a downward spiral of unambitious production and low demand.
Some bullish traders might argue that demand for Lucid Group’s vehicles should pick up because the company announced a $7,500 “credit” on the purchase of select EV models. However, this will be funded by Lucid, not by the U.S. government.
Besides, Lucid Group’s vehicles are quite expensive. The Air Touring model starts at $107,400, and Lucid’s Grand Touring model starts at a whopping $138,000. A company-funded $7,500 rebate won’t suddenly make these EV models affordable to many prospective car buyers.
So, How Much Further Could LCID Stock Fall?
It’s going to be difficult for Lucid Group to successfully compete with Tesla and other EV makers this year. Plus, Lucid has to overcome soft demand for the company’s pricey vehicles.
LCID stock recently traded near $9 and could easily fall below $5 before the year is over. Therefore, it’s not a bad idea to limit your share exposure to Lucid Group as the company faces a long-term uphill battle in the EV market.
On the date of publication, David Moadel 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.