Upscale luxury manufacturer Lucid Motors (NASDAQ:LCID) — which focuses exclusively on electric vehicles (EVs) aimed at Tesla (NASDAQ:TSLA) — has been struggling throughout this week. Fundamentally, both the company and the underlying industry suffer from two significant headwinds. With little relief in sight, investors have backed away from LCID stock.
First, Lucid is reeling from a price war that Tesla initiated. While the cynical action was geared toward weakening the competition, as InvestorPlace’s Louis Navellier pointed out, the move also boomeranged back. In Tesla’s fourth quarter, earnings fell 23% while gross margins compressed down to 17.6%, missing the consensus estimate of 18.1%.
Unfortunately, stakeholders of LCID stock have become increasingly frustrated because the price war now stems from another lane: legacy automakers, which began transitioning to EV production in response to Tesla’s market dominance. However, with demand for electric-powered mobility falling, companies have little choice but to implement price cuts on their slow-moving EVs.
Exacerbating the situation for LCID stock and its direct peers is that legacy automakers enjoy alternative avenues for sales generation, namely, combustion-based vehicles. For pure-play EV manufacturers, though, it’s all or nothing.
LCID Stock Faces a Hybrid Threat
Adding to troubles for LCID stock is a second threat to the business: the rise of hybrid vehicles. These platforms use both an internal combustion engine and an electric motor for propulsion. Essentially, hybrid cars take components from both worlds, benefiting from higher efficiencies while advantaging infrastructure that already exists.
Not only that, the rare bright spot in the automotive ecosystem right now centers on hybrids. According to The Wall Street Journal, Toyota (NYSE:TM) has generated a windfall selling gasoline-electric vehicles. Earlier this year, the company forecast a record $30.3 billion net profit for its fiscal year ending March due to higher sales of hybrids in all of its major markets.
What’s even more problematic for LCID stock and EV companies in general is that consumers may be eschewing pure EVs for hybrid vehicles. Earlier this week, the market recoiled when a key inflation reading ran hotter than expected. The culprit? Higher energy prices.
However, several EV manufacturers failed to rise higher on the news. LCID stock is down almost 6% for the trailing week. Rivian Automotive (NASDAQ:RIVN) dropped 10% during the same period. While Tesla shares managed to move higher, it was only modestly so, up a little over 1%.
Why It Matters
Currently, Wall Street analysts rate LCID stock as a consensus hold. This assessment breaks down as one buy, six holds and two sells. Overall, the average price target comes in at $3.21, implying over 29% upside potential. However, the downside target of $1 warrants concern among investors.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
