Lucid Motors Stock Is Priced for Perfection Even If It Continues to Slide Here

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So Lucid Motors (NASDAQ:LCID) stock is selling off, but the EV carmaker that is hoping to hit its year-end goal of delivering 520 cars, is still selling at a market cap that higher than Ford (NYSE:F).

Exterior of Lucid Motors (LCID) building
Source: gg5795 / Shutterstock.com

If the market continues to sell off on the hyped tech side more than the manufacturing side of the indexes, maybe that dynamic may change.

The fact that these stocks are so richly valued for no discernable reason should give investors – maybe not speculators – pause.

The sheer logistics of ramping up production and delivery of the number of vehicles to justify that market will take years. And that says nothing of the challenges that are unknown – parts availability, service, software, etc.

LCID Stocks Halo Effect

Current investors don’t seem to be concerned about all that silly stuff. Unless you’re an established car company with a global parts and service infrastructure already in place.

Then a key part of your valuation process comes from real-world stuff like sales and margins and recalls. Why don’t the same standards apply to ALL car companies? Because what fun would that be?

LCID is routinely compared to Tesla (NASDAQ:TSLA). That may be a standard for EVs to some extent, but it’s certainly not a realistic standard for anything but EV companies.

The major car manufacturers are now rolling out EVs, and many are making some very good cars at competitive price points. There are now models across all price points, from cheap to ultra-luxe.

That means competition is rising for these start-ups, yet investors don’t seem to care, apparently. This would be like valuing your home 5x the comparable prices in your neighborhood and having to field offers at premiums to that price.

But That Inflow of Cash Can Help

The one thing that LCID can do to help its current situation is deploy this cash windfall in a responsible way. That may smooth its path.

Currently, Saudi Arabia’s Public Investment Fund actually owns a significant position in LCID stock. The Kingdom of Saudi Arabia (KSA) is a top market for EVs, especially high-end ones.

So, you can also think of LCID a de facto Saudi EV maker, and that means it has some very deep pockets.

It also means that LCID has a built-in market outside the US. And given the close nature of many of the Gulf states, LCID could have a significant market for its nicest models.

There’s a path to success here, but there’s a long trip from IPO to big-time EV juggernaut.

And Now an SEC Probe

Recently, the SEC announced that it’s investigating the nature of LCID stock’s SPAC deal. Shares have dropped but it’s valuation is still massive.

If a combination of the investigation and the current market rotation out of these tech-focused SPAC newborns brings LCID stock down to more reasonable levels, it would certainly be worth a gamble.

The trouble is, if it sold off say 50% or more from here, it’s likely the drop may not stop at a reasonable level and continue to crater. It will be hard to determine whether you’re bottom feeding or trying to catch a falling knife.

I’m guessing six months from now, LCID stock may be a much better buy than it is today. And with strong financial backing from KSA, that money won’t run. For now, the risks don’t merit the opportunity.

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 during that time. He’s seen a few things and hears more.

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.


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