Shares of Lucid Group (NASDAQ: LCID) were down sharply on Tuesday after new economic data raised fears of a recession.
At 2:30 p.m. ET, Lucid’s shares were down about 8.2% from Wednesday’s closing price.
Lucid aims to get its new Gravity electric luxury SUV into production by year’s end. A recession could force a delay — or worse. Image source: Lucid Group.
Two fresh data points on Thursday suggested that the U.S. economy may be heading for a recession.
First, initial jobless claims rose to 249,000 last week, higher than expected and the highest total since August of 2023. In addition, the ISM manufacturing index, a measure of manufacturing productivity in the U.S., was 46.8% for July. That’s the fourth month in a row that it’s been down, a sign that America’s manufacturing sector is contracting.
A recession could be a huge problem for Lucid. Here’s some background.
Automakers’ profits have historically shrunk or disappeared during recessions. That’s because auto factories, thanks to high fixed costs, typically break even at around 80% of full capacity. Vehicle sales fall during recessions. A factory that runs below breakeven is losing money, even if it’s still producing thousands of vehicles a month.
Lucid’s factory isn’t yet profitable. A recession that led to a significant decline in sales would deepen its losses, and quickly.
Most major global automakers now maintain hefty cash reserves to ensure that they can continue to fund product development through a recession, a lesson learned during the Great Recession of 2008-2009.
But Lucid, which needs to raise more cash anyway, could find itself struggling to do so in a recession.
That’s why the stock is down today.
Lucid will report its second-quarter results, and its remaining cash, after the U.S. markets close on Monday, Aug. 5.
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