While the rest of the market was being hammered by China’s Evergrande crisis, Lucid Group (NASDAQ:LCID) stock rose 20%.
The reason? There’s growing belief that Lucid has a car that can beat Tesla (NASDAQ:TSLA) in the luxury end of the market, and the capital with which to make it.
Deliveries are due to start from a factory in Arizona next month. Thanks to early Saudi participation in its financing, the company has enough capital to scale production. Lucid began trading as LCID in late July.
Living Down the SPAC
There has been optimism around Lucid before, which the stock is trying to live down.
As Churchill Capital IV, or CCIV, shares traded at over $50 each in mid-February. By the start of September, the shares were down 20% since its SPAC merger went through. They have now just about broken even, as has the Nasdaq composite during that time.
It’s the adequacy of capital, as much as the success of prototypes, that’s driving money into Lucid stock. Tesla now has a market cap of $730 billion. Lucid, with a similar business model, is valued at $39 billion. The CEO is a former Tesla manager named Peter Rawlinson. The argument is it can be easier to follow a technology leader than pave the way. Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google was the 10th search engine to enter the market.
Lucid isn’t the only electric vehicle maker analysts are now high on. They argue that Nio (NYSE:NIO) now has a better reputation than Tesla in China, and that Amazon-backed (NASDAQ:AMZN) Rivian makes a better truck. Volkswagen (OTCMKTS:VWAGY) expects to deliver 450,000 electric cars this year, over half of Tesla’s estimated production.
How Many Cars?
Lucid expects to start vehicle deliveries next month but it will be years before it earns money. Research company CFRA, which has a $25 price target on the stock, thinks it will still be losing money in 2024.
Some of the recent rise of LCID stock may also be a short squeeze, with 8% of the shares recently held short. Those who made a private investment in public equity (PIPE) investors may be able to cash out soon, increasing the short interest. There could also be some speculation due to good-looking stock charts. In any case there are now analysts who expect Lucid stock to soar.
What should matter to investors, in my view, is just how many cars Lucid will be making, and how fast. Its Arizona plant can make 34,000 per year. It’s building additional plants in both Europe and Saudi Arabia. But 2022 production is expected to be just 20,000 vehicles as part shortages continue to hammer the industry.
The Bottom Line for LCID Stock
The electric vehicle revolution is here, delayed due to supply chain constraints and the COVID-19 pandemic.
Analysts are now looking past the pandemic and believe any company that can guarantee production has a clear path ahead of it.
But the road is about to get crowded. The Lucid Air’s price of $77,000 is much higher than that of most Tesla cars. The question isn’t whether Lucid can make a car, but whether it can sell out at that price point.
Tesla was able to grow by first dominating the luxury market, then dropping prices as it scaled production. Scaling proved difficult, as I wrote at the time. It will be difficult for Lucid.
It may also be difficult for General Motors (NYSE:GM), Ford (NYSE:F), and the rest of the auto pack now revving up their electric vehicle production. What happens to LCID stock once we’re spoiled for choice, and it starts to move down market? I will be an interested spectator.
On the date of publication, Dana Blankenhorn held long positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.