Lucid Group (LCID) in Danger of Short Squeeze as Cash Burn Intensifies

Business Insider

18 hours ago

(LCID) is another EV maker struggling in the stock market—a company with weak margins, erratic valuations, high cash burn, and a persistent habit of diluting existing shareholders. It's one of the clearest examples of how the early hype surrounding EV SPACs collided with the brutal realities of the automotive industry.
Don't Miss TipRanks' Half-Year Sale
Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Make smarter investment decisions with TipRanks' Smart Investor Picks, delivered to your inbox every week.
Not only has Lucid's stock dropped more than 90% since going public in mid-2021, but it has also fallen by over 30% this year, driven by very high short interest fueled by weak fundamentals and the real risk that it will soon run out of cash. That means it'll likely need external funding, leading to more dilution—a vicious cycle that's steadily destroying value for retail shareholders. When compared against the S&P 500 (SPX), LCID has drastically underperformed.
That said, for now, the best long-term play is arguably to Sell Lucid, in my view. However, shorting it could also be risky, as the current setup makes a short squeeze a real possibility.
How Lucid Lost Its Spark
In 2021, Lucid went public via a SPAC at the height of the EV frenzy, driving the stock to a peak of nearly $60 per share. At that time, the market was pricing electric vehicles as a highly disruptive technology, expecting massive production growth for Lucid and assuming it would reach 'Tesla-like' margins within a few years.
The problem is, very little of that has actually happened. Lucid overpromised and underdelivered on production targets, missing them multiple times due to supply chain issues, manufacturing challenges, and operational inefficiencies. The initial expectation was to deliver 20,000 vehicles in its first year as a publicly traded company, but actual deliveries came to less than 5,000. To put it in perspective, by 2024, the company had delivered 10,241 vehicles for the year.
Lucid has positioned itself in the EV market as an ultra-premium luxury brand, with models like the Lucid Air priced very high (ranging from $70,000 to $250,000), which limits its addressable market. Over the past few years, rising interest rates have made luxury buyers more cautious, while cheaper EVs have gained traction, thereby hurting Lucid's value proposition and increasing its cash burn. As a result, Lucid has had to undergo multiple rounds of fundraising and share dilution, even with Saudi Arabia's Public Investment Fund (PIF) as its primary backer. Still, shareholders have felt the pain of dilution.
In the past four years, Lucid has grown its shares outstanding by 83%, raised $6.53 billion from equity sales, and burned through $7.79 billion in operating cash flow, resulting in a 96% decline from its all-time high reached at the end of 2021, according to TipRanks data.
The High Cost of Betting Against Lucid
Trading near penny-stock levels at just $2.16 per share, despite having a market capitalization of $6.6 billion, Lucid's troubled outlook unsurprisingly attracts considerable attention from short sellers. Currently, LCID is one of the most heavily shorted stocks in the U.S., with around 47% of its float sold short.
One significant reason for this heavy skepticism is that Lucid has approximately $3.6 billion in cash and short-term investments on its balance sheet while incurring only $1.95 billion in annual operating cash flow. This gives it an estimated cash runway of only about 1.8 years—if the burn rate stays the same, meaning it will likely need more funding soon, which would probably lead to further dilution.
Adding to these liquidity challenges, LCID trades at an EV-to-sales ratio of 8.3x, which is more than six times the industry average and over three times higher than its peers, such as Rivian (RIVN), which trades at 2.7x.
While these factors help explain why short interest in LCID is so high, it's also important to note that borrowing shares to short LCID comes with a steep cost—15.7% per year. This cost-to-borrow (CTB) is driven by supply and demand for shares available to borrow. Even with a large float, the high CTB indicates that there are too few LCID shares available to borrow and a massive demand to short the stock. For comparison, stable blue-chip stocks usually have a CTB of 0.5% or less.
On the one hand, this combination of explosive short interest and a high borrowing cost signals a strong market belief that Lucid's stock price will decline. On the other hand, it also sets up a high risk of a short squeeze. If any positive news briefly shifts investor sentiment and causes the share price to rise, short sellers could be forced to buy back shares to close their positions, triggering a snowball effect that pushes LCID's price up quickly. Of course, this is speculative, but the setup is definitely in place. As a result, LCID stock tends to be highly volatile.
Where the Lucid Bulls Find Hope
If the pessimism surrounding LCID is already fairly straightforward, there are still some points that bulls can latch onto that might eventually squeeze a large number of sellers out of this stock.
For example, the release of its Gravity SUV—which, although there's little clarity on pre-orders—has reportedly been doing well. Lucid continues to expand its production capacity, and the SUV is expected to give a significant boost to sales in 2026. The consensus expects revenues to reach $2.74 billion, compared to the $870 million reported in the last twelve months. Lucid also hints that it's working on a new mid-sized model, which could arrive by the end of 2026, potentially generating some buzz depending on market reception.
However, in my view, the most considerable foothold for bulls is Saudi Arabia's support through its sovereign wealth fund, which owns 73% of the company, according to TipRanks data. Lucid has already begun operating its plant in King Abdullah Economic City (KAEC), Saudi Arabia, with an initial annual production capacity of up to 5,000 vehicles. The company plans to expand this to 155,000 units annually by the end of the decade. This plant is strategic to meet the agreement to deliver up to 100,000 vehicles to the Saudi government and is part of the country's push to diversify its economy and attract cutting-edge technology.
So, while execution risks are enormous, it's not all bad for Lucid. The company has a 'demand anchor' with the Saudi government agreement providing a revenue floor, and the expansion is well financed by the PIF (implying less dilution risk).
Add in potential progress in local production and meaningful deliveries, and that could be enough to shake the short-seller's narrative—even if only slightly. At current levels, that might be enough to trigger a quick spike in the share price.
Is Lucid Group a Buy, Sell, or Hold?
The consensus among analysts is still skeptical about LCID's near-term future. Of the seven analysts covering the stock over the past three months, none are bullish, one is bearish, and six are neutral. LCID's average price target of $2.38 implies a potential upside of about 14% from the current share price.
Brutal Fundamentals Induce Risk of Short Squeeze
Lucid currently faces a challenging outlook. While long-term sales growth projections appear promising, the company's elevated cash burn rate makes further dilution highly likely. Additionally, Lucid operates in a price-sensitive segment of the EV market, which complicates efforts to scale efficiently, helping to explain the stock's persistently high short interest. From a fundamental standpoint, I view LCID as a Sell, as ongoing capital raises may continue to weigh on the stock despite potential revenue growth.
That said, for risk-tolerant traders, LCID may still present speculative opportunities. The stock's high short interest creates the potential for short squeezes, offering the possibility of sharp, short-term gains—albeit with elevated volatility and downside risk.