Shares of Lucid Group (NASDAQ:LCID) are trading down 1% after passing Ford’s (NYSE:F) market capitalization on Tuesday. This price action can be explained by a warning call from Morgan Stanley analyst Adam Jonas. Jonas reiterated that “scaling production is historically the riskiest part of a company’s lifecycle. This risk is compounded by unprecedented supply chain disruption outside of LCID’s control.”
Interestingly enough, Morgan Stanley raised its price target on LCID stock from $12 to $16. However, a $16 price target still represents a massive 70% downside risk when compared to current prices. The investment firms believes Lucid will miss 2030 production targets and its target long-term EBITDA margin of 15%.
According to TipRanks, Adam Jonas has a 58% success rate and an average return of 15.3% over a one-year period. Jonas covers other automakers, such as Tesla (NASDAQ:TSLA) and Ferrari (NYSE:RACE), much more favorably. Jonas has a $350 price target for RACE stock, which represents 31% upside from current prices and is also a Wall Street high. Ferrari is currently Jonas’ “favorite EV stock,” even though the first electric vehicle (EV) that Ferrari produces likely won’t be available until early 2024 or 2025.
For Tesla, Jonas’ price target falls at $1,200, representing 10% upside.
Investors should note that Jonas’ bearish target comes as LCID stock is up a stunning 450% year to date (YTD). Shares have obliterated the S&P 500’s 27% YTD return.
How Does the Future Look for LCID Stock?
Morgan Stanley’s warning is not news for Lucid. While investors may seen their confidence rise in Lucid’s potential due to the dramatic price increase over the past 3 months, Lucid is still a company in the early stages of production.
Coupled with its massive market capitalization of $89 billion, Lucid carries significant risk going forward. In comparison, legacy automaker Ford carries a market capitalization of $78 billion and produced 4.2 million vehicles during 2020. Investors are betting on the ability of Lucid’s management to execute and stay in-line with competitors in a booming market. Investors also seem to be valuing Lucid as a technology company and not as a car company.
The bottom line is that management needs to deliver. Looking ahead, the company plans on producing 20,000 vehicles during 2022. Investors should keep a watchful eye on that goal.
On the date of publication, Eddie Pan 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.