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Why Lucid Stock Jumped Today

By Neha Chamaria – Dec 22, 2021 at 3:17PM

Key Points

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Institutional investors must be buying Lucid stock while EV enthusiasts lap up Air reviews.

What happened

Hot electric vehicle (EV) stock Lucid Group (LCID 0.39%) seemed to have lost some of its mojo in recent weeks. But it roared back on Wednesday, surging 5.7% as of 11:35 a.m. ET. Lucid shares just started trading on a popular stock index, and the luxury EV maker is now flush with cash to pump into growth. Oh, and Lucid Air received yet another glorious review that's called the car Tesla's (TSLA 1.86%) "living nightmare."

So what

On Dec. 20, Lucid stock started trading on the Nasdaq-100 index, a market-cap weighted index comprising 100 of the largest domestic and international non-financial stocks based on market capitalization.

Inclusion in an index, especially a popular one like the Nasdaq-100 that's chock-full of growth stocks, can typically lift investor sentiment. But it can also drive the stock price higher as institutional investors who track the index have to buy the stock to match it. That's what's happening with Lucid stock right now, but it isn't the only factor driving the EV stock higher today.

A Lucid Air car on a road.

Image source: Lucid Group.

Lucid also announced it has completed the sale of senior convertible notes and raised roughly $2 billion in gross proceeds to use for general corporate purposes and business expansion.

As of Sept. 30, 2021, Lucid had $4.8 billion in cash and cash equivalents, and short-term investments, which means Lucid now has almost $7 billion in cash to put to good use. Lucid had secured more than 17,000 reservations across all four trim variants of Lucid Air as of Nov. 15. Although the company is expected to deliver only a few hundred cars this year, Lucid has an ambitious target of producing 20,000 vehicles in 2022. The EV maker has evidently taken advantage of the market's enthusiasm by raising money while it can to scale up capacity.

All of this comes right when the U.S. Environmental Protection Agency (EPA) has finalized its most ambitious-ever greenhouse gas-emission standards that hugely favor electric vehicles. On the basis of these new standards, the EPA projects sales of EVs and plug-in hybrids to grow 7% in model year 2023 to 17% by model year 2026.

Meanwhile, Lucid Air Dream Edition -- the first and most expensive trim the company is selling -- continues to make heads turn. Popular YouTube channel Throttle House just released a detailed video review of Air Dream, comparing it to Tesla's Model S Plaid and concluding that Lucid could give Tesla a proper run for its money if it can successfully deploy Air Dream's powerful technology into lower-priced models. Throttle House calls Air Dream closest to the "perfect EV" we've seen so far.

Now what

Just yesterday, I picked Lucid as one of the hottest growth stocks primed to take off; the company is much-better placed than the likes of Nikola to navigate an ongoing probe by the Securities and Exchange Commission (SEC) given that its cars are already on the road and have been officially certified as being the longest range EV yet.

I expect Lucid's delivery rate to be initially slow as it upgrades existing production lines. I also expect the company will continue to incur losses for a considerable period of time before it can convert revenues into profits. Yet, among all the EV stocks starting out, Lucid could potentially be one of the biggest EV stocks in the long run.

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

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