Lucid Group Stock Is Down 67% in 12 Months. Here's Why.

Key Points

Lucid Group stock has struggled over the past year.

There is one obvious reason behind the company's underperformance.

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On paper, Lucid Group (NASDAQ: LCID) has huge potential upside over the long term. The company's market cap currently hovers around $2.7 billion. Rivian, a competing electric vehicle (EV) stock, is valued closer to $20 billion. And Tesla, of course, has a valuation well above $1 trillion.

That gap may suggest increasing upside potential, particularly as Lucid’s share price has declined sharply. Over the past year, the stock has fallen by approximately two-thirds, further widening the valuation disparity.

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Why have shares slid so heavily? And is now the time to jump into this high-risk, high-reward stock?

Here's why Lucid Group stock is performing so poorly

It's not hard to understand why Lucid shares have struggled in recent quarters. Just take a look at what has happened to the vast majority of EV start-ups over the years. Over the past decade, at least 30 EV start-ups have either gone bankrupt or simply disappeared. As Tesla has proven, the upside potential is clear, which has led venture capital firms to continually jump-start new EV businesses. But it can take years, or even decades, for a vehicle to go from the design stage to fully scaled production.

This process also typically requires billions of dollars in capital -- capital that must remain patient through huge stretches of net losses.

Mark Wakefield, managing director at AlixPartners, recently told CNBC that it’s more attractive to start a car company now than it was 10 years ago.

He further adds:

But compared to starting a new social media app or a new consumer service or something else that just doesn't consume billions before you even start, before you even get your first dollar of revenue? It is tough. Just look at the capital returns -- not the stock prices, the actual returns on capital. They're not very attractive. This is a highly capital-intensive, competitive industry.

Since going public in 2021, Lucid has never posted a profit. It has never even achieved positive gross margins. And that's permissible as long as the market believes profitability will eventually arrive. But Lucid seems to be losing the market's faith.

Affordable EV models remain uncertain

I've already outlined how critical it is for an EV maker to get an affordable model to market in terms of achieving mass scale, and through that, profitability. Tesla has several vehicles priced under $50,000 -- vehicles that comprise the vast majority of its auto sales. Rivian expects to begin deliveries on its first vehicle priced under $50,000 sometime this summer.

What about Lucid? The company has teased more affordable models for years. But details remain scarce. Management recently revealed that it hopes to get a new mid-sized model into production at its Saudi Arabia facility by the end of 2026. The company apparently has two additional affordable models set for production in 2028 and 2030. Put simply: I'll believe it when I see it. Tesla famously struggled mightily with scaling its first affordable model, the Model 3. These scaling struggles nearly sank the company.

Should you buy Lucid stock at today's discounted valuation?

I wouldn't touch Lucid Group with a ten-foot pole right now. I love the company as a business and am excited to see where things go long term. But as an investment, I'm sticking to the sidelines.

To be clear, I expect the company will stay in business, especially after raising fresh capital from investors and strategic partners. But those funders -- which include Uber Technologies and Saudi Arabia's sovereign wealth fund -- have motives other than direct financial gain. Uber wants to improve its potential supply pipeline for autonomous vehicles, while Saudi Arabia has internal economic and power-signaling interests.

If you're looking to pick up cheap EV stocks, take a closer look at Rivian. Rivian trades at just 3.7 times sales versus Lucid's valuation of 6 times sales. Yet Rivian is much closer to both releasing an affordable model and reaching full profitability.

Should you buy stock in Lucid Group right now?

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.