Luminar Technologies (NASDAQ:LAZR) is reeling from a sharp sell-off by tech-sector pessimists. Shares of the LiDAR (light detection and ranging) player fell 16.1% on Thursday, September 22, as investors grew increasingly wary of the hi-tech firm amid rising interest rates and a fresh downgrade from Northland Securities.
Northland Securities analyst Gus Richard downgraded the LAZR stock from Buy to Hold, and also retracted from his price target of $13 to $10. This drove investors away from the stock. Richard noted that the demand generation and subsequent adoption of Luminar’s LiDAR are taking longer than expected.
However, the downgrade only scratches the surface. Looking deeper, more issues may be causing Luminar investors to flee.
Luminar develops affordable automotive-grade LiDAR products primarily for the autonomous market. The Fed’s commitment to continuing to increase interest rates to at least 4.4% by the end of the year despite running the risk of a recession spooked tech investors. For context, technology companies rely heavily on loans to fund their innovations. This makes the sector one of the most susceptible to interest rate changes.
The automotive sector is expected to suffer from a demand drop in the coming months as consumers tighten their spending habits. This, combined with high supply costs (thanks to inflation), certainly does not bode well for the auto sector, especially autonomous vehicles, and electric vehicles. Moreover, borrowing is also getting more expensive. This partially explains why the adoption of LAZR’s technology is taking so long to find a meaningful market.
On the other hand, China pointed at the U.S. Inflation Reduction Act, saying that certain clauses, such as eliminating federal tax credits for EVs manufactured outside North America, might be violating the WTO rules. This added to the woes of the auto sector, and other related sectors.
Is LAZR a Buy or Sell?
Wall Street, for now, is bullish on the company, with a Strong Buy consensus rating based on seven Buys and two Holds. The average price target for Luminar stands at $16.78, an 114% upside from current prices.
Bottom-Line
Elevated costs, expectations of a demand suppression for high-end autonomous cars or EVs amid recessionary concerns, the intense cash-burning nature of most automobile companies, and increased scrutiny on the EV sector are all expected to push auto prices down.
Being a company that sells its technology directly to auto companies, Luminar inevitably falls into the line of fire.
However, being one of the first and one of the best players in the LiDAR market, and given the strong longer-term prospects of its end-markets, Luminar could be a good bet for those with a longer-term view.
