Is Lucid’s Reverse Stock Split a Sign of Desperation?

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Amidst the buzz about Uber Technologies’ (UBER) collaboration with Lucid Motors (LCID) and Nuro, an autonomous driving tech startup, and their substantial joint investment, a less noticed event emerged: the possibility of a reverse stock split.

Let’s delve into the specifics of a reverse stock split, its limitations, and how it affects Lucid Group investors in the future. Is this a last-ditch effort?

Fair or foul?

Electric vehicle manufacturer Lucid Group disclosed on Thursday that they have submitted a preliminary report to the Securities and Exchange Commission (SEC) for a shareholder meeting, where they plan to approve a reverse stock split. This reverse split will see their Class A common shares being consolidated at a ratio of 1-for-10 (1:10).

Let’s analyze the implications of this possible stock split for Lucid, and what they aim to accomplish with such a move.

A 1-for-10 reverse stock split implies that Lucid is decreasing its total number of shares by tenfold. This means that ten old shares are being consolidated into one new share. Consequently, the share price will be increased by a factor of 10. To illustrate this clearly, consider a company with 100 shares priced at $1 each. After the reverse split, there would be only 10 shares, but each share would now cost $10.

You should keep in mind that this action doesn’t alter the worth of what investors hold. Although stock prices may fluctuate, the company’s total market value, as well as the voting power and position value for the investors, will remain unchanged because a reduction in the number of shares issued doesn’t affect their ownership.

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Let me address the question many investors are asking: Is this a sign of distress? Not always, as there could be several factors leading to a reverse stock split. It’s correct that such a move is often made by a company facing delisting from significant exchanges like the NYSE or Nasdaq, which enforce a minimum share price of $1.00 per share. However, this doesn’t necessarily mean the company is in dire straits.

If a company’s stock price dips below a certain level for 30 consecutive business days, they receive a warning notice and are allowed some time to increase their share price. In the case of Lucid, while its current share price is approximately $3.15, and it reached a 52-week low of $1.93, it’s not yet at risk of being removed from trading due to market conditions being unfavorable for electric vehicles and the impact of tariffs. However, it’s worth noting that its share price is close to its 52-week low, which might cause some concern.

There’s also a possibility that Lucid could benefit from a potential reverse stock split, as some companies increase their share price to attract big institutional investors who often have policies against investing in stocks under a specific minimum value. If the price rises, it might encourage larger investors to buy into the company, potentially driving the stock price even higher. This isn’t always the case, but Lucid aims to make its stock more appealing to a wider range of investors by doing this.

What it all means

In essence, at the close of business, the market typically perceives a reverse stock split unfavorably. This action is often associated with companies experiencing financial difficulties, as they have a declining share price and the possibility of being removed from trading – traits that are generally unattractive for potential investors.

Lucid Motors continues to spend heavily, yet it’s consistently increasing its delivery pace, marking seven consecutive quarters with higher deliveries. The company’s future is heavily dependent on the success of its new electric Gravity SUV and a midsize platform that will support at least three additional electric SUVs in the pipeline.

At present, Lucid has sufficient funds to operate smoothly until the end of 2026. Although the market typically disfavors reverse stock splits, this move should not cause unnecessary concerns for Lucid investors since they were already aware of the company’s high-risk, high-reward nature. In other words, significant fluctuations in Lucid’s share price are to be expected. Therefore, it is crucial to invest with a suitable strategy that accounts for these potential price swings.

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2025-07-20 19:12