Lucid Motors reported its Q3 2022 earnings and LCID stock continues to drop lower from its $57 high in 2021. It’s been extremely tough for Lucid Motors investors because there was so much hype behind the company.

I personally have a $23 average cost basis and am down 50% on my position. Since LCID is the largest stock holding in my investment portfolio, I feel inclined to explain exactly what is going on with LCID stock.

Why is Lucid Stock Going Down So Much?

Lucid’s biggest problem is cash burn and negative free cash flow. I will continue to say this again and again because I truly believe this is Lucid’s #1 issue.

In Q3 2022. Lucid only generated $194 million in revenue but lost $530 million with a negative FCF of $859 million.

The company recently raised $1.4 billion to bolster its balance sheet and increase its cash position. $600 million will come from a dilutive stock offering while the other $900 million is from the Saudi PIF.

The Saudi PIF is Lucid’s largest shareholder and must continue providing capital to protect its long-term investment.

Will Lucid Stock Crash Below $10?

Right now, I believe LCID is a realistic short-term price target for Lucid stock because cash burn won’t stop overnight. As Lucid continues ramping up production, capital expenditures and net losses will continue to accelerate.

Lucid Needs to work on lowering the overall cost of manufacturing and attempt to produce the same Lucid Air EVs at a cheaper price if the company wants to avoid going bankrupt.

Otherwise, Lucid will need more capital and that means more dilution is probably coming soon.

Lucid’s P/S Ratio is Too High When Compared to the Industry Average

P/S Ratios are a good tool for comparing stocks to see how many years investors must pay for revenue. LCID’s P/S ratio is around 125, which is way above industry leaders such as Tesla (P/S ratio of 8).

The good news is that Lucid’s revenue growth will continue shrinking the P/S ratio in the long run but many investors will take a look at this key metric and believe LCID stock is overvalued.

Things Could Get Worse Before Lucid Motors Turns The Company Around

Lucid Motors currently sits at a $20 billion market cap but I don’t think that will last long. LCID stock could dip below $10 by the end of 2022 and trade around $5 to $8 before the market flips next year.

Don’t be shocked if LCID stock continues to crash. Most SPACs trade below the initial $10 stock price at some point but it’s possible that Lucid could turn things around next year if the economy improves.

How to Protect Yourself Against LCID Stock Losses

There are several ways you can protect your LCID investment in case the stock continues falling.

1. Sell covered calls against your LCID shares to generate a premium and pay yourself a kind of “Lucid Dividend”
2. Buy puts to profit if LCID stock continues crashing.
3. Do nothing and simply average down on your position by buying more LCID stock at a cheaper price.

The entire EV industry is down and many EV companies will either file for bankruptcy or get acquired over the next 12 months. Lucid is a long term investment so try some of the strategies above to limit your losses while the company scales revenue.