Lucid (LCID) Is a Matryoshka Doll of Pain But Patience Is a Virtue

Like a jump scare-strewn horror film, shares of electric vehicle manufacturer Lucid Group (LCID) is likely best watched through tight finger slits just open wide enough to let in some stimuli to understand what’s going on. Indeed, LCID stock seems to worsen at every turn, testing investors’ patience. And in the options market, it appears that some traders have had enough. Nevertheless, Lucid’s distinct take on EVs just might prove the doubters wrong.

Nevertheless, said proof will probably take an extended period. For now, it’s important to acknowledge some harsh realities. LCID stock is a matryoshka doll of pain. Referencing the Russian nesting dolls, no matter how deeply you unravel Lucid’s narrative, the print remains virtually stained in crimson ink.

Let’s start with the year-to-date performance, which is down a staggering 69%. In the trailing half-year period, LCID stock slipped a worrying 40.6%. In the trailing month, the underlying company found itself below parity by 23.6%. Yes, even in the trailing week, LCID managed to disappoint stakeholders, declining a sadly stout 15%.

About the only good news was that on the Oct. 11 session, LCID stock moved up 1.4%. Awesome.

Fundamentally, it’s easy to see why patience represents a rare commodity with the EV maker. In March of this year, management “reduced its 2022 production and delivery estimate from 20,000 units down to a range of 12,000 to 14,000 Lucid Air electric sedans.” That’s strike one.

Later, in August, Lucid again cut its guidance, with the company now expecting “to produce only 6,000 to 7,000 vehicles this year.” That’s strike two.

Earlier this month, a report revealed that “Lucid burned through $823 million between operating cash losses and capital expenditures last quarter alone, and only has $4.3 billion in cash against $2 billion in long-term debt.” I guess you can call that strike three.

LCID Stock Suffers from Evaporated Patience

Understandably, many folks simply got tired of dealing with LCID stock. Not only is the underlying enterprise a matryoshka doll of pain in the price charts, the company itself continues to deliver disappointment after disappointment. Therefore, bears targeted LCID, which became one of the subjects of unusual options activity.

Specifically, pessimistic traders targeted the $5 put options with an expiration date of Jan. 17, 2025. That’s 828 days from the time the orders were placed. Volume for the transaction reached 9,506 contracts against an open interest reading of 174. LCID stock closed at $12.65 in the open market, meaning that it must decline by 60.5% to be at the money.

Moreover, the bid-ask spread as represented by the midpoint price ($1.21) came out to 14.05%. Wider-than-normal spreads indicate a lower level of liquidity for the trade. In addition, market makers often give themselves a healthy safety margin for transactions that are difficult to place. Certainly, a lot can happen in 828 days.

Not surprisingly, the recent bearish rumblings in the options market aligns with the predominant trend, though not to an exaggerated degree. According to data from Barchart.com, the put/call open interest ratio stands at 0.80. Usually, 0.70 represents the threshold between bullish and bearish sentiment, with figures higher than the aforementioned metric indicating that more traders are buying puts than calls.

So far, analysts have given LCID stock the benefit of the doubt but that’s slowly changing. Between now and three months ago, Lucid features a consensus rating of “moderate buy.” However, LCID currently has two individual ratings of “strong sell” while a quarter ago, it only had one.

Not All Hope Is Lost

Despite the ugliness in LCID stock – and broader weakness in the EV sector overall – contrarian investors may have an upside opportunity with Lucid. However, the bullish trade will require plenty of patience and an iron will.

Across various reports on LCID stock, a common theme stands out: macroeconomic pressures. With inflation soaring to the moon, many consumers decided to unwind their discretionary purchases. And while vehicles represent necessities in many parts of the country, one doesn’t need the absolute best in luxury. As long as drivers can get from point A to point B reliably, everything else is almost superfluous.

That said, I’m not entirely sure if macroeconomic pressures matter to Lucid’s core consumer group. Let’s be real – we’re talking about a car that starts at $87,400. Bear in mind that in 2021, the real median household income came out to $70,784. Arguably most folks are not thinking about purchasing a Lucid EV.

Instead, Lucid aims for an exclusively affluent crowd, the type that views Tesla (TSLA) EVs as boring. Admittedly, the production issue is distracting and that’s going to need serious improvement in the years ahead. However, assuming this problem is fixed, the economics will likely follow. Again, we’re talking about a completely different set of customers.

Not a Trade for Everyone

To be clear, LCID stock is not for everyone. With so many factors involved in the global economy, immediate sentiment for Lucid is really up in the air (no pun intended). However, it’s also incorrect to say that the EV maker has zero chance of becoming a profitable investment. It’s just going to require loads of patience and some lucky breaks.

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