Lucid Group (LCID) stock plunged on Tuesday following reports that the struggling electric-vehicle maker hired restructuring adviser AlixPartners to review its business. However, Lucid strongly denied rumors that it is preparing to file for bankruptcy. Indeed, the company said that it has enough cash to continue operating well into next year and that the adviser was hired only to improve its operations and cut costs.
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According to Bloomberg, AlixPartners is examining all parts of Lucid’s business. The company wants to become more efficient and improve the chances of successfully launching its upcoming midsize vehicle. Lucid said that the firm has not recommended bankruptcy to management or its board.
Still, Lucid shares fell as much as 57% during the session, which was their worst intraday decline on record. Trading was halted several times before the stock recovered some of its losses to close down roughly 16% on the day.
Investors Are Worried About Lucid’s Finances
The sharp reaction shows that investors are worried about Lucid’s finances. The company recently pulled its production outlook and cut jobs as it takes a closer look at how it runs the business. New CEO Silvio Napoli has also been making changes to the leadership team, which include removing the chief operating officer role and bringing in a new finance chief.
It also doesn’t help that costs are rising while demand for EVs is cooling down. Changes in government policy have also made things tougher for the industry, as consumers now have fewer tax incentives to purchase EVs.
Moreover, Lucid depends heavily on funding from Saudi Arabia’s Public Investment Fund, which is its biggest investor. As a result, Needham analyst Chris Pierce said that bankruptcy could become a risk if that support ever stopped, though funding has remained steady so far. However, Needham expects Lucid will need to raise more than $5 billion over the next three years.
Is LCID Stock a Good Buy?
Turning to Wall Street, analysts have a Hold consensus rating on LCID stock based on one Buy, eight Holds, and two Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average LCID price target of $9.63 per share implies 107% upside potential.
