$LCID An Underrated EV PlayerPlagued with production issues and declining demand, Lucid Group, Inc. (NASDAQ: LCID) is attempting to turn around its business to compete in the EV space. In order to scale up production, LCID recently announced a $3 billion offering that would significantly dilute current shareholders. In light of this, LCID stock dropped by as much as 21% on the news. However, this sell-off may be an overreaction since the PIF is participating in the offering to maintain its stake in the EV startup. Given the PIF’s strong backing of the company, LCID stock may be a profitable buy at its current dip.
LCID Fundamentals
Production is the root of all of LCID’s problems with the company cutting its production guidance twice in 2022 and once in 2023 so far. As a result, LCID is unable to fulfill its reservations and the reservation waiting period is extremely long. In this way, demand for LCID’s vehicles is declining as consumers are heading to other EV manufacturers that have less waiting period for deliveries.
Capital Raise
Looking to improve its production capabilities, LCID recently announced a $3 billion offering where 173.5 million shares will be sold in a public offering for $1.2 billion, and 256.6 million shares will be sold to the company’s majority shareholder the PIF for $1.8 billion. Although this dilution will significantly dilute current shareholders, it might be beneficial for LCID’s long-term prospects since it would help the company ramp up production to meet demand for its vehicles.
PIF Backing
At the same time, this capital raise further shows the PIF’s commitment to helping LCID grow since it is not the first time the PIF provided help to the EV startup. In late 2022, the PIF contributed $915 million in a $1.5 billion capital raise to boost LCID’s cash balance. Moreover, the PIF provided LCID with a 100 thousand purchase order from the Saudi government in addition to facilitating a new facility in Saudi Arabia that would increase production by 150 thousand vehicles.
Through this recent $3 billion offering, LCID would boost its already solid cash balance of $900 million along with $2 billion in short-term investments according to its latest Q1 report. Since these funds would be integral for LCID to scale its production, the sell-off on the offering announcement may be an overreaction by the market – potentially making this current dip an opportunity to add LCID stock.
Another TSLA Story?
It is worth noting that all EV startups have to dilute at some point to raise the capital required to scale up production. One of the most notable examples of an EV startup diluting is the EV giant Tesla, Inc. (NASDAQ: TSLA) which has diluted 13 times to reach its current position as an industry leader. When TSLA went public in 2010, the company had 110 million shares outstanding – a number which increased significantly to 3.1 billion currently.
During TSLA’s long journey, TSLA stock plunged several times on dilution news, yet holding TSLA stock at the time has proven to be a profitable decision as TSLA is now the largest EV manufacturer in the world. LCID could be in a similar position currently since its main issue is production, and since this problem could be solved with the recent offering, LCID stock could be a bargain at the current PPS for long-term investors.
Technical Analysis
LCID stock’s trend is neutral with the stock trading in a sideways channel between $6.92 and $8.31, however, the stock broke the channel following the news of the $3 billion capital raise. Looking at the indicators, LCID is trading below the 200, 50, and 21 MAs which are bearish indications. However, the RSI is approaching oversold at 34 and the MACD is approaching a bullish crossover which might signal a run in the near term. On that note, there is a gap near $7.6 which could be filled soon.
As for the fundamentals, LCID dropped 21% on the news of its $3 billion capital raise due to the dilution that would happen to current shareholders. However, it is worth noting that the PIF is participating in the offering which might indicate that the sell-off could be an overreaction given the PIF’s confidence in the company’s prospects. In light of this, LCID could be poised to rebound soon which might make the current dip an attractive entry point.
LCID Forecast
Although LCID stock dropped 21% after announcing its $3 billion capital raise, the current dip could be an opportunity to go long on LCID stock considering the PIF’s participation in the offering. Since this dilution would contribute to solving the company’s core issue which is production, LCID can focus on reaching profitability if it is able to successfully increase production. While dilution could be negative for shareholders in the short term, LCID’s prospects might improve significantly with the influx of cash it is set to receive.
