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What Lucid’s Odd Stock-Price Drop Tells Us About Investing

A Lucid Air Grand Touring car.

Jeenah Moon/Bloomberg

A slide in Lucid Group’s stock price on Tuesday highlights a key point about investing: The mix of investors who hold a stock makes a difference.

Shares of the electric-vehicle company (ticker: LCID) fell 5.6% in morning trading, while the S&P 500 and Dow Jones Industrial Average were both down about 0.6%. News that LCID is laying the groundwork to raise capital at some point in the future—something that has long been clearly on the cards—appears to be behind the move.

Lucid (ticker: LCID) filed a “universal shelf” registration statement that allows it to raise up to $8 billion in any combination of stock, preferred shares, warrants, and debt. That is a large amount, but the registration statement doesn’t mean a huge stock sale is coming soon.

Companies have limits on what securities they can sell without telling their owners—shareholders—first. Shelf registrations give them the ability to raise money when management believes the time is right.

The best explanation for the market’s reaction to Lucid’s relatively routine filing might be that the stock is a favorite of individual investors, rather than institutions. And retail investors tend to be less familiar with capital-markets minutiae than Wall Street’s big players.

About 70% of the Lucid shares available for trading are held by retail investors, while institutions such as mutual funds hold the rest. That is a high percentage, given that the comparable numbers for Tesla (TSLA) and Microsoft (MSFT) are 45% and 25%, respectively.

It should surprise no one that Lucid is going to need more capital as it builds out its business. Wall Street projects Lucid will burn through about $8 billion over the next couple of years, while it ended the second quarter with roughly $4.3 billion on the books.

Building a car business from scratch, as Lucid is trying to do, is expensive. Tesla used up roughly $9 billion before it began consistently generating free cash flow.

Coming into Tuesday trading, Lucid stock was down about 56% so far this year, while the S&P 500 and Dow Jones Industrial Average were off about 15% and 12%, respectively.

Write to Al Root at allen.root@dowjones.com