Electric vehicle (EV) manufacturer Lucid Group (NASDAQ:LCID) recently announced major changes that might alarm some investors. Experts on Wall Street will undoubtedly have different takes on Lucid’s plans for 2023. However, the big picture doesn’t look bullish for LCID stock.
Lucid Group has been unprofitable quarter after quarter, and the company only produced 7,180 vehicles last year. Plus, shares of Lucid Group have lost a substantial amount of value over the past year.
Hence, the burden is on Lucid Group to demonstrate that it can deliver results and remain viable as a business venture. Unfortunately, if they’re hoping for a comeback this year, Lucid’s loyal investors will likely be disappointed.
Lucid Group’s Cost-Cutting Plan Will Be Expensive
Not long ago, Lucid Group issued a Form 8-K along with CEO Peter Rawlinson’s e-mail message to the company’s staff. The subject line of the e-mail message read: “Difficult News Today.”
Indeed, it was “difficult” as Rawlinson announced that Lucid Group will reduce its headcount “by approximately 18%.” That’s a sizable reduction, and investors should wonder whether it will negatively impact the quality of Lucid’s customer service, marketing efforts, product development and so on.
The optimists might argue that Lucid Group could save a lot of money through this “restructuring plan.” However, due to severance payments, employee transitions and other complications, it will be expensive to let all of those workers go. Specifically, Lucid Group expects to incur roughly $24 million to $30 million worth of “charges in connection with” the restructuring plan.
Two Analysts Weigh In on LCID Stock
As you might expect, experts on Wall Street have different takes on Lucid Group’s restructuring plan. Bank of America analyst John Murphy feels that Lucid’s cost reductions “could mean many things.” That may be true, but I would emphasize that Lucid’s Form 8-K and attached e-mail message mainly focused on the aforementioned layoffs.
Murphy also warns that Lucid Group’s workforce reduction “sends a cautionary signal for a company in growth mode.” Murphy gave LCID stock a $10 price target and a “neutral” rating, and forecast that Lucid Group will “need to raise more capital and sooner than we had previously projected.”
However, Morgan Stanley analyst Adam Jonas seemed to take a more optimistic tone regarding Lucid Group’s restructuring plans. Per Seeking Alpha, Jonas reportedly claimed that Lucid’s “savings could be meaningful when also combined with further actions including reduced capital expenditure and other actions.”
It remains to be seen, though, what those “further actions” might entail. Besides, Jonas clearly isn’t ultra-bullish on Lucid Group. He issued an unambitious $5 price target and an “underweight” rating on LCID stock.
Steer Clear of LCID Stock
Lucid Group’s path to profitability is unclear as the company hasn’t sold many EVs. Furthermore, Lucid’s cost-reduction plan will actually be quite expensive in the short term.
In the final analysis, I wouldn’t expect Lucid Group’s restructuring plan to solve the company’s financial problems. Therefore, it would be wise for investors to refrain from buying LCID stock now.
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.