Is it worth it to invest in the “next Tesla” or is it way too optimistic there could even be a next Tesla?

This upstart challenger to Tesla, Lucid (LCID) is more or less what I thought about Tesla a few years ago – buy the car and not the stock.

Like many businesses in the world – it comes down to time and place.

Tesla benefited from generous federal subsidies, first mover advantage and LCID is just a little late to the action.

Why does that matter?

Tesla had its knife and fork at the table by itself when nobody else wanted to join them.

The problem with legacy automakers is that it took them too long to realize that EVs were a tsunami instead of a splash in a pond.

I know with conviction that EV makers like LCID are slogging through because of the numbers that materialize in their earnings reports.

The numbers are a manifestation of the time and place phenomenon that I just mentioned.

LCID continues to face major cash flow issues and will be lucky to exist in a few years.

A high burn rate is a hallmark of smaller EV companies and even Tesla had to be saved at the last second it its early days.

LCID simply doesn’t have the expertise and economies of scale to bring down the unit economics where it delivers a profit.

This achievement is also pushed out far into the future.  

We are also seeing a widening gap in its production and deliveries, with approximately 4.76K units undelivered, with a growing inventory value of $1.01B.

LCID's resale value appears to be drastically impacted, with one recently auctioned for $85K, compared to the base model of $110,000.

The intense capital burn has forced LCID management to issue more common stock which dilutes current shareholders and suppresses the stock price.

While LCID may have won the battery competition through its longest driving range and market-leading design, the management's choice to go premium has clearly undermined the mass market.

This is a segment that fellow automakers such as Tesla (TSLA) and BYD (OTCPK:BYDDF) have invested great efforts while improving their supply chain and pricing strategies.

This alone suggests LCID's highly niche market segment based on the hefty price tag of $150K per unit, compared to TSLA at $40K and BYD between $20K to $30K (in China), effectively will stoke higher cash burn levels.

For now, LCID has not achieved break-even, selling every EV at a loss.

This signals weak consumer demand for LCID.

This automaker's expanded annualized production capacity of up to 90K vehicles in the AMP-1 facility and up to 155K in the Saudi Arabia facility.

Production is still miles behind Tesla at a time when supply chains and material costs are squeezing EV makers even more.

When we consider that the stock was trading at $20 per share just 1 year ago, the stock languishing at $7.50 today represents quite a pitiful performance.

I do acknowledge they make quite a nice EV.

However, it’s still highly debatable whether its business model is sustainable.

I do believe that around $4 per share is a good entry point for this EV maker.

Any pop from $4 should be sold.

There is no reason to overpay for LCID right now in a market that values accelerating and positive free cash flow.

Better the stock come to you than to go fishing for it.

There are many so-called “experts” and “economists” dumping on the upcoming tech earnings season.

I got it – they won’t be the best ever.

No need to beat a dead horse when it’s down.

They say that the optimism of a soft landing for the economy is dissipating as stubbornly high inflation keeps central banks hawkish.

It’s hard to believe that tech stocks have been on a tear in 2023 during a period of hawkishness.

Higher for longer luckily has not affected tech stocks yet, yet many are saying this earnings season could be the straw that breaks the camel’s back.

I must admit, at the intro level such as venture capitalism and start-ups, the rate environment has been nothing short of catastrophic.

Investors aren't giving money for just ideas anymore.

The good news is that at the incubator level, nobody cares because these paltry numbers don’t move the stock market and are decades away from going public.

It doesn’t matter to the tech market that the next Amazon or Facebook has a tough time borrowing with these sky-high rates.

Nobody cares because most people hold Apple and Tesla stock.

I am also willing to call B.S. on the negativity for the upcoming tech earnings season and will say it should be just fine.

I am not diminishing the belt-tightening going on inside the offices, it certainly is happening.  

Tech companies are hunkering down, which is true because the low-lying fruit has been plucked off the branch.

42% of respondents from a recent survey said the biggest negative for the earnings season will be the impact of further tightening of financial conditions.

I would say that if that is the biggest risk out there to respondents, then tech shares will certainly end the year higher from today.

There’s also a widespread belief that earnings per share (EPS) will fall off a cliff and then rebound to growth in the final three months of the year, according to data by Bloomberg Intelligence.

This seems like the perfect setup for tech executives to lower the bar.

While the tech rally was boosted by the hype around artificial intelligence, over 70% of survey participants say the impact of AI on tech earnings is overblown.

Amid the gloom, the biggest positive drivers for equities will be any signs of easing inflation and cost cutting, according to the majority of those surveyed.

Ultimately, it has already been baked into the pie that margins will come under pressure as companies lose the ability to keep raising prices when inflation cools and as growth slows.

That doesn’t mean there will be anything more than a technical and orderly pullback which I have been championing for.

A result like that would be healthy for tech stocks.

Tech shares simply cannot go up in a straight line forever, but they keep defying gravity in the first 7 months of the year.

Even if the big 7 tech stocks signal some downshifting revenue trajectories, it won’t be more than a few days' drop in shares signifying a marvelous opportunity to finally get into some of these premium names that rarely offer optimal entry points.

Expect nothing special from this earnings season and buy any garden variety dip from premium tech stocks.