Lucid Will Take Off When It Delivers Its First Model

The luxury electric vehicle maker Lucid Group (NASDAQ:LCID) stock started trading on the Nasdaq in late July after Churchill Capital Corp. IV took the company public. Following the highly anticipated initial public offering (IPO), LCID stock opened at $25.24 on July 26. It’s trading now for about $23.50.

Exterior of Lucid Motors building
Source: gg5795 /

Investors who bought in July have not yet seen any returns from their investment. As a young company with no track record, LCID stock currently stands as a risky investment.

Yet if management can follow through its goals, Lucid Motors is primed to become a solid long-term investment at current prices.

Let’s see why.

Recent Price Action in LCID Stock

The merger with Churchill Capital provided the company access to $4.4 billion in cash. And Lucid has attracted considerable attention from investors as the company has laid out plans to challenge Tesla’s (NASDAQ:TSLA) dominant market share in the EV space.

However, the price action has not yet pleased shareholders who have put capital into the stock in recent weeks. LCID shares surged more than 10% on the first day of trading, but they have swiftly given up those gains.

Based on a fully diluted share count of 1.62 billion shares, Lucid Group is valued at around $38 billion today. While the current stock price stands above the $10 Churchill Capital investors had to pay early on, LCID shares have, nonetheless, plunged 65% from their highs in mid-February.

Many analysts believe Lucid Motors looks well positioned to capitalize on the rapidly growing EV market. But the company  has not yet generated any meaningful revenues. And that is what seems to be pressuring LCID stock at this point.

In the EV space, it is all about future growth potential. Most EV pure-plays such as NIO (NYSE:NIO) or XPeng (NYSE:XPEV) are not yet profitable. While Tesla has reached profitability, it is still difficult to make a meaningful valuation on a price-earnings basis, as it trades at 147x forward earnings and about 370x trailing GAAP profits. The same holds true for Lucid, which has only generated negligible revenues so far.

Lucid Air Is Highly Anticipated

The EV maker is expected to start delivering its high-performance luxury EV sedan Lucid Air in the coming months. Currently, Lucid has more than 11,000 paid reservations for the luxury car, representing almost $1 billion in anticipated sales. The Lucid Air has not started production but has recently concluded its pre-production phase.

Management claims Lucid Air beats Tesla Model S in battery efficiency. Another battery contender is Rivian R1T, backed by Amazon (NASDAQ:AMZN). The company highlights, “with a charging rate as fast as 20 miles per minute — it is also the fastest charging electric vehicle ever offered. In real-world terms, this means up to 300 miles of range in just 20 minutes.”

However, Lucid Air currently has a high price tag at around $160,000, including federal subsidies. A cheaper version with a $70,000 price tag is on its way to be released in 2022. Nevertheless, a substantial amount of customers are already convinced that Lucid Air is worth the lofty price tag. The company is also in the process of building out a new production line for its Gravity luxury SUV that could potentially hit the EV market by 2023.

With almost $5 billion in the bank, Lucid is well positioned to follow through on its growth plans in the coming years. Access to capital is a significant aspect of the bullish argument for LCID stock, as it is crucial for building and operating manufacturing plants worldwide, as well as funding operations while running losses.

In this context, it’s worth highlighting that Saudi Arabia has invested $2.9 billion in Lucid Motors. The Saudi Public Investment Fund (PIF) has more than 60% ownership of the company. The investment also comes with an obligation that Lucid Motors will build a new factory in the country at King Abdullah Economic City near Jeddah.

Bottom Line on LCID Stock

Lucid Group has a solid balance sheet that could drive future growth. It is well positioned tech-wise to become a leading player in the EV space. If management indeed follows through with its goals, Lucid Motors is primed to become a solid long-term investment at current prices.

However, as a young company with no track record, LCID stock is a risky investment. Current shareholders could easily face losses if management fails to deliver production and delivery goals. But above-average risks also imply significant upside for LCID shareholders. Therefore, LCID stock is currently suitable only for risk-hungry portfolios.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

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