Lucid Group Got a Nice Boost, But There’s No Reason to Go All In

Lucid Group (NASDAQ:LCID) is having quite a moment. In late September it announced that it would start delivering its cars in late October. Not surprisingly LCID stock is up more than 15% in the past month.

The Lucid Motors (LCID) Plant in Arizona.
Source: Around the World Photos / Shutterstock.com

Positive headlines for LCID stock are coming fast and furious. The financial press is very excited, which stirs up investors, of course.

However, this is very good news for the EV market since some of the other EV makers are having a tougher go of it than the hype would have suggested a few quarters ago.

Some are hanging on by their fingernails. Some have been rescued – for now – by big investors. Others are chugging along with huge market valuations.

Even LCID stock is sporting a nearly $40 billion market cap before its first delivery has been made. That’s a very optimistic multiple.

The market cap of Stellantis (NYSE:STLA), the maker of Fiat, Chrysler, Jeep, Alfa Romeo, Peugeot, Ram, Vauxhall and others) is $51 billion. Ford Motor (NYSE:F) has a $57 billion market cap.

LCID Stock Bullish as FOMO Fizzles

The craziest thing about all this is that the market is starting to rotate out of tech and into more inflation-hedged sectors, including bonds. That also means balance sheets are important again.

Companies with real earnings will come back into fashion and investors will be a bit more scrupulous of the companies they’re buying. This is going to leave this sector out of the limelight if the markets continue as they are.

Also, if the market corrects significantly now (or once the Federal Reserve stops its backstopping and bond-buying) these fun high-growth “go long the future” picks will lose their appeal quickly.

Granted, LCID stock is catering to the high-end market and any mere market correction isn’t going to bother that demographic. Sales will be good. But will they be that good?

So Far, So Good, So Overvalued

As I noted above, LCID stock’s market cap is as wild as the rest of the second wave EV makers like Nio (NYSE:NIO) – $55 billion – and others. Of course, I’m not a fan of Tesla (NASDAQ:TSLA) and its $773 billion market cap either.

Don’t get me wrong. I think EVs are great and I’m happy that they have become so popular, but I’m also bullish on hydrogen-powered vehicles.

In my view, electric vehicles have been around in one form or another for more than a century, they’re just gaining traction again. And while this is happening, there are new developments driving newer technologies.

It’s a bit like arguing over VHS or Betamax videotapes – both important technologies – as compact disks take the entire market. There’s a big change in not just how we power vehicles, but how we own and use them as well.

If car ownership loses its cool with younger generations and smart people figure out how to car share or if using autonomous ride services becomes more affordable and efficient, car sales will drop. Fewer car sales plus more car companies spells a much tougher market for all of them.

On the other hand, if the economy tanks due to supply chain issues, U.S.-China troubles, internal political upheaval, or a black swan event, the first companies to go are these high fliers with plenty of potential and no profits.

Trust, but Verify

So, if after all this you still are compelled to buy LCID stock, then please buy it over time. A little now, a little next month, etc.

If I’ve been able to keep you from jumping in at all, good for you. There’s no way it can sustain these levels. Just stop thinking about it for now (I’m sure some shiny new and awesome stock will pop up any second) and revisit LCID stock in 2022.

On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time. He’s seen a few things and hears more.


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