Last week, investors heard that Lucid Group (LCID -0.46%) was drastically cutting its 2022 production target. After initially saying it hoped to produce 20,000 of its fully electric Air sedans in 2022, the company said it was lowering the target in its first full year of production to between 12,000 and 14,000 vehicles.
That sent the stock sliding for a more than 20% drop in the next five days. But shares popped today, putting more light on what should be considered positive news that the company reported last week. That makes it a good time to see if the five-day drop was overdone, and whether Lucid stock is now a buy.
Image source: Lucid Group.
A production target cut of up to 40% certainly isn't what investors want to hear in a company's update for the first quarterly period that includes commercial sales of its product. That made last week's stock decline understandable. But investors interested in Lucid group -- or any burgeoning company in a growing sector -- shouldn't be in the stock with a quarter-to-quarter outlook. It is a high-risk, aggressive investment and should have a very long time horizon with expectations of a volatile share price.
Lucid only delivered 125 vehicles in the fourth quarter, after its initial shipments began at the end of October. But it has reservations for more than 25,000 of its luxury Air sedans as of Feb. 28. That represents about $2.4 billion in expected future sales of the high-priced sedans. Lucid also had $6.2 billion in cash at the end of 2021, and it told investors where it was going to invest some of that with another announcement last week. News that it plans to build 150,000 vehicles annually at a new facility in Saudi Arabia got somewhat lost in the reaction to the production guidance cut.
That will become Lucid's second production facility, and its first phase of international growth. Investors have known that Lucid planned to expand globally, and now the first investment is underway with the company beginning construction in Saudi Arabia in the first half of 2022.
In the bigger picture, neither the new production estimates nor the plans for the new plant should individually guide a decision on whether to buy Lucid stock now. As mentioned, any investment should be considered speculative and long-term. Investors need to look for any patterns emerging from future guidance and growth investments. And they should be comfortable to hold as the stock could move sharply in both directions along the way.
