What happened

Despite heading higher today, Lucid Group (LCID 2.21%) stock looks set to end the week in negative territory. Through noon ET on Friday, shares of the electric vehicle (EV) manufacturer were down 8% for the week, according to data provided by S&P Global Market Intelligence.

Lucid has proposed a share sale that even attracted an analyst downgrade; but worst yet, Lucid's reservation backlog fell in the last quarter. That's not what investors want to see in a young EV start-up that was touted to give Tesla a run for its money.

So what

In the third quarter, Lucid produced a record number of vehicles, or 2,282 units, and delivered 1,398 units. Its production was up more than threefold sequentially, and the company generated $195.5 million in revenue during the quarter.

So far, so good. But Lucid's loss from operations surged 38% year over year in Q3 to $687.5 million as it incurred high costs to keep its manufacturing facilities running despite low production. Worse yet, it expects production volumes to still be "significantly" below its manufacturing capacity in the near term. In other words, high costs could continue to dent Lucid's bottom line in the foreseeable future.

While that sounds worrisome, what really made its investors jittery was its reservation backlog -- Lucid reported 34,000 reservations for Lucid Air cars as of Nov. 7, down from 37,000 as of Aug. 3. My rough calculation indicates almost 1,600 reservations for Lucid Air were canceled in the third quarter. Ouch. 

To add to the bad news, the company also announced plans to sell common stock worth nearly $1.5 billion, partly in the market and partly to an affiliate of Saudi Arabia's Public Investment Fund, which is also a majority shareholder in Lucid.

Although that money should help Lucid fund existing operations and growth, a share sale will also dilute existing shareholders' wealth. R.F. Lafferty analyst Jaime Perez, for instance, believes this funding should help Lucid expand and develop its projects, but Perez still cut Lucid stock's price target to $17 a share from $19 per share on a higher share count, according to The Fly.

Now what

Lucid pegs its reservation backlog to be worth around $3.2 billion in revenue -- a figure that will be realized only if all of its reservations convert into confirmed orders. That's a big if, though, as Lucid's snail-paced production means long wait times for customers, which increases the chances of reservation cancellations.

On the flip side, Lucid also has reservations for up to 100,000 electric cars from Saudi Arabia and plans to open reservations for its flagship electric SUV called Gravity in early 2023. However, Lucid is still a speculative bet, which explains the recent volatility in the stock price.