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Why Lucid Stock Plunged 15% Today

By Neha Chamaria – Nov 18, 2021 at 2:02PM

Key Points

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Profit-taking is in full swing after the electric vehicle stock's dizzying rally, but there's more you should know.

What happened

For the second day in a row this week, electric vehicle (EV) stock Lucid Group (LCID 43.00%) crashed as it came under the fire of several analysts after a heady rally in recent days. Lucid shares were trading down 15.8% as of 12:55 p.m. ET today, extending its losses from the day before.

So what

Lucid became the talking point in the EV industry in recent weeks after the stock more than doubled in value since the start of October before hitting the brakes yesterday. Remarkably, investor interest in the stock ran so high that Lucid shares jumped by double digits on Tuesday despite the company's third-quarter numbers falling short of estimates.

What goes up must come down, and given Lucid's jaw-dropping recent run-up, some amount of profit-taking was due. Lucid, though, isn't the only stock seeing heavy selling pressure -- other EV stocks that were hot sellers barely weeks, even days ago, are also feeling the heat. Nio, for example, is down more than 10% so far this week, and the latest kid on the EV block, Rivian Automotive, has reversed course just as swiftly as it soared in the days following its debut on the stock market on Nov. 10.

Hand plugging electric charger to socket in electric car at sunrise.

Image source: Getty Images.

Investors are clearly questioning whether these stocks, and Lucid in particular, deserve the sky-high valuation, especially after its market capitalization flew past those of auto giants Ford and General Motors on Tuesday. That gave Lucid bears a strong argument to put forth.

Of course, it's typical of growth stocks to rise exponentially at even the slightest hint of a rosy future. Lucid, for that matter, has achieved multiple milestones of late. Just this week, it bagged the coveted 2022 MotorTrend Car of the Year award for its Air cars, reported strong growth in reservations, and said its reservations of 13,000 cars as of the end of September were worth around $1.3 billion. The company already had 17,000 reservations by the time it released its Q3 numbers a couple of days ago.

Yet, when multiple analysts start seeing a stock as too hot to handle, with one analyst even going out to predict a 70% fall -- yes, you read that right -- in the stock's price, you can't really blame any market player for dumping the stock.

LCID Chart

LCID data by YCharts

After Lucid's jump on Tuesday, analyst Adam Jonas at Morgan Stanley raised his price target on Lucid stock, but only to $16 a share. Lucid shares were hovering above $55 a share at the time. So although Jonas is impressed by Lucid's reservation numbers and its goal to deliver 20,000 cars in 2022, among other things, he doesn't see the stock worth more than $16 a share just yet.

Now what

Volatility is inherent in the stock markets, and Lucid is still just a start-up. However, the EV industry is also pretty much still in its nascent stage but growing rapidly nonetheless, which is why most EV stocks have premium valuations. As an investor in EV stocks, though, you must have a long-term game plan and be ready to stomach volatility in between. And, when it comes to long-term prospects, I still believe Lucid is one of the promising EV stocks out there to own. Also, remember to take analyst price targets with a grain of salt, as they change frequently. 

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. The Motley Fool has a disclosure policy.

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