Why Lucid Stock Initially Dropped Today

Shares of Lucid Group (NASDAQ:LCID) dropped as much as 5% today after an analyst rating cut. The negative report on the stock comes three weeks after Lucid reported disappointing third-quarter results earlier this month.

As of 1:30 p.m. ET, Lucid stock had recovered from the early drop and was trading higher by 2.5%. But that might just be because the stock has already dropped nearly 10% since the third-quarter report and more than 45% in the past six months.

The demand question

Lucid launched its business relying on market demand for high-end luxury electric vehicles (EVs). Its Air sedans range in price from nearly $80,000 to as much as $250,000. It counted on its EV technology, which delivered high horsepower and a minimum battery range of over 400 miles. But demand for its Air sedan models doesn't seem to be panning out.

In its third-quarter update, Lucid only reported revenue of $137.8 million from deliveries of less than 1,500 vehicles. Based on that underperformance, it also lowered its full-year outlook for vehicle shipments.

That led Needham senior analyst Chris Pierce to cut his prior buy rating on the stock to a hold. In his note shared by Barron's, Pierce wrote, "Our Lucid downgrade [stems] from demand wariness, despite our bullishness on their technology advantage versus peers."

Lucid's last stand

But Lucid is hoping the launch of its next electric vehicle will help spur its business. The company officially introduced its Gravity SUV after its third-quarter update. That EV will be available in about one year and will also have industry-leading battery technology that will provide a minimum battery range of about 440 miles.

But it will also only appeal to a more wealthy buyer, with a list price approaching $80,000. In his analyst report, Pierce acknowledged he has a positive view of the Gravity. But investors counting on a recovery in Lucid shares need to believe there's a large enough audience for that new vehicle. Those who don't should stay away from Lucid stock.

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Howard Smith has positions in Lucid Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.