EV startup Lucid Motors (NASDAQ:LCID) stock is soaring after Lucid Air received an Environmental Protection Agency (EPA) rating.
With momentum building it’s clear that investors are betting big on these vehicles becoming a major player in America’s near future transportation landscape.
There’s also been more attention from the media coming from the launch of luxury sedan EVs, not to mention material upside as they begin deliveries.
Against this backdrop, LCID stock becomes an interesting EV prospect—however, the intense competition. And an already high market capitalization makes it hard to justify a long position in Lucid at current levels.
Lucid completed a reverse merger with special purpose acquisition company (SPAC) Churchill Capital Corp IV in July. The combination raised $4.4 billion, giving the company more than enough resources for at least until the end of 2022.
The problem is that Lucid Motors is already trading like a legacy automaker. In 2022 it will generate less than $3 billion in revenues.
By 2024, this number will be less than $10 billion if everything continues according to plan. But the numbers do not justify a market cap of over $41 billion.
The company lacks revenues right now and has no car to sell, so their stock is risky. There are other EV plays with more potential out there that are not nearly as expensive.
Several Challenges Ahead
Lucid Motors was founded 14 years ago and is currently in the pre-revenue stage. It still hasn’t entered a commercialization phase, but they hope to release their first vehicles this year if everything goes according to plan.
It specializes in the design and production of luxury electric vehicles. They are gearing for the launch of their flagship car; an all-electric sedan called Lucid Air. The car will have a base price of around $77K per unit with more expensive versions available for over $170k.
In the future, Lucid plans on releasing a premium SUV named Project Gravity in 2023. The company will then pivot towards more affordable vehicles. But it’s too soon to tell if they’ll successfully commercialize their models.
However, the EPA rating is certainly good news for LCID bulls. The Lucid Air Dream Edition Range was recently given its EPA rating, and it has already made a splash by topping the EV market with an amazing 520 miles of range on one charge.
This sedan is going to be popular before it even becomes available for purchase.
The EPA rating is a big deal for electric vehicle companies because it provides them with much-needed credibility. It also helps establish brand trust, resulting in higher reservations/sales.
Nevertheless, the negative part is that there are only 13,000 paid reservations so far.
It’s uncertain whether all potential customers will buy the vehicle on launch since the reservation fee is $300 and the reservations are fully refundable.
And we have not even discussed the possibility of another delay.
LCID Stock Is Risky and Trading at a Premium
Lucid is an electric vehicle startup with no sales and no commercial manufacturing experience.
The EV maker is also burning through a lot of cash at this point. But this could increase tenfold if they go through the full development stage on their latest model.
Luxury electric vehicles are becoming more popular as the market continues to grow. Lucid has strong marketing and loyal customers, which gives them an edge in this competitive industry.
A successful launch for their luxury sedan could make them one of your go-to brands. But there’s a chance that margins may start decreasing as more companies enter the sector.
All things considered, Lucid is one of the most promising EV startups, and their Air reservations could be better than expected by year-end.
The free-charging offer makes a purchase even more attractive, but Lucid faces its biggest test yet with the upcoming rollout: will customers want something new or would rather stick to what they know with Tesla (NASDAQ:TSLA)? We will have to wait and see, which makes LCID stock a risky proposition at this stage.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.