What Can Investors Learn from Lucid’s Newly Added Risk Factors?


California-based Lucid Group (LCID) is an electric vehicle company. It has a manufacturing plant in Arizona where it has begun producing its Lucid Air car. The factory can currently produce up to 34,000 vehicles per year, and Lucid is expanding it to be able to produce up to 90,000 vehicles annually by the end of 2023.

With this in mind, let us take a look at the financials of the company and understand its newly added risk factors. (See Insiders’ Hot Stocks on TipRanks)

Q3 Financial Results

Lucid’s revenue of $232,000 for the third quarter of 2021 fell short of the consensus estimate of $1.25 million. Further, it posted a loss per share of $0.43, which also missed the consensus estimate of a loss of $0.25 per share. The company ended the quarter with $4.8 billion in cash. (See Lucid Group stock charts on TipRanks).

Risk Factors

According to the new TipRanks’ Risk Factors tool, LCID’s main risk categories are Finance & Corporate and Production, which account for 35% and 25%, respectively, of the total 84 risks identified for the stock. Recently, the company has added 78 new risks to its profile.

The company has told investors that it has designated specific courts in Delaware as the exclusive forum for resolving disputes with shareholders. It cautions that the court designation could limit the ability of shareholders to bring up cases in courts of their choice. The company also warns that it may incur additional costs if it were forced to resolve disputes with shareholders outside its preferred courts and that could adversely affect its business and financial condition.

Lucid has informed investors that it is controlled by an investor called Ayar, which owns 62.7% of its common stock. As a result of being a controlled company, Lucid says, it is exempt from certain corporate governance requirements. What this means is Lucid shareholders may not have the same protections that are available to shareholders of companies that are not controlled. It cautions that when it comes to merger or takeover transactions, Ayar’s interests may not align with those of other shareholders.

Lucid tells investors that its business is capital intensive and it does not expect its operations to generate positive cash flow for several years. Therefore, the company will need to raise additional funds to support its business growth. It can use equity or debt financing options. It cautions that equity or convertible debt financing could result in existing shareholders suffering significant dilution. If the company chooses debt financing option, it may be subject to restrictions that could make it difficult to obtain additional funds in the future. Lucid warns that it may need to delay or change its plans if it fails to obtain adequate financing and that could hurt its prospects.

The Finance and Corporate risk factor’s sector average is at 35%, slightly above LCID’s 34%. Shares of the company has gained about 455% year-to-date.

Price Target

Following Lucid’s Q3 report, Citigroup analyst Itay Michaeli reiterated a Buy rating on Lucid stock and raised the price target to $57 from $28. Michaeli’s price target suggests 2.67% upside potential.

Consensus among analysts is a Moderate Buy based on 2 Buys and 1 Sell. The average Lucid Group price target of $43 implies 22.55% upside potential to current levels.

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