What happened
After closing at an all-time record low price yesterday, shares of luxury electric vehicle (EV) maker Lucid Group (LCID 2.88%) were bouncing Wednesday morning. With the stock down over 83% in 2022, the recent slide to new lows can probably be explained pretty easily. And opportunistic investors may be taking advantage of the record low price and buying the stock today. Lucid shares popped as much as 7% early today, and held onto a gain of 1.3% at 11 a.m. ET.
So what
The stock has dropped this year thanks to fundamental problems the luxury EV maker has had trying to ramp up production in its first year of operations. It's had to navigate supply chain problems and rising raw material costs at a time when rising interest rates make raising capital more difficult.
That combination has snowballed to a point where investor selling has brought the stock to a new record low probably in a bid to generate capital losses for tax reasons.
Image source: Lucid Group.
Now what
Generating capital losses makes sense for tax planning purposes to offset gains and reduce one's annual tax bill. It seems especially prudent for a stock like Lucid that doesn't appear to have a short-term catalyst. Investors can always buy the stock back after 30 days has passed to avoid the wash sale rule and hope to hold the same amount of shares after that month while gaining the aforementioned tax advantage.
The risk, of course, is that the stock takes off in that 30-day period. But Lucid is facing short-term headwinds that are affecting the whole EV sector. Until the company shows it can significantly ramp up production, the stock won't really have a fundamental catalyst. That might come next year, but some active investors seem to be trying to use the situation to lower capital gains taxes in the meantime. Those with long-term timelines may have been taking advantage of that today.
