After being in a consolidation phase for an extended period, Lucid (NASDAQ:LCID) stock saw a sharp rally in Q4 2021. LCID stock surged by 89% between Oct. 27 and the end of 2021.
The catalyst for the rally was the company delivering its first electric vehicle (EV), Lucid Air. Investors cheered on the company’s ability to deliver as promised. On top of this, the vehicle seems superior to other EVs in terms of technology.
However, LCID stock lost some strength after the U.S. Securities and Exchange Commission issued subpoena (on December 3, 2021) to investigate projections and statements made by the company at the time of its merger. However, Lucid is unlikely to face any major challenges with SEC probe as it has remained on track with its deliverables.
On a positive note, the company has not experienced any major selloff, even after the expiration of the lock-up period (on January 19, 2022) for 74% of its outstanding shares by legacy investors.
Since LCID stock is still hovering around the same level as at the end of December 2021 it reflects optimism and showcases legacy investors’ decision to remain invested. The stock should rebound on any positive developments.
At current levels, it appears to be a good investment opportunity from a long-term perspective. Here’s a closer look at Lucid stock moving forward.
Industry Tailwinds Support LCID Stock’s Growth
According to Allied Market research, the global electric vehicle market is projected to reach $802.81 billion by 2027. Governments across geographies are promoting deployment of electric vehicles to reduce greenhouse gas emissions caused by Internal Combustion Engine (ICE) vehicles.
Several government incentives, including deduction on interest paid on loans, electric vehicles tax credits and incentives for the use of plug-in electric vehicles are estimated to generate huge long-term opportunities.
In December 2021, the U.S. Environmental Protection Agency (EPA) set tighter fuel mileage standards for cars and light trucks of 40 miles per gallon from 2026 and beyond. These regulations will support EV sales growth.
Even as competition intensifies, positive industry tailwinds are one reason to be bullish on LCID stock.
Initial Order Book of Lucid Looks Encouraging
In the Q3 2021, management revealed customer reservation of more than 13,000 units, implying an order book of $1.3 billion. Customer reservations have further grown to 17,000 units as of November 15, 2021. Given an upsurge in demand, Lucid might achieve its optimistic guidance.
Management aims to grow progressively by delivering 20,000 EV units by the end of 2022 and 49,000 units by 2023. Further, Lucid expects to deliver 251,000 electric vehicles by 2026. With a healthy outlook for deliveries, revenue is expected to grow at a CAGR of 79% through 2026.
What makes this EV special is its drivetrain and battery pack technologies. The Lucid Air Dream Edition has the longest range rating in the industry. A single charge can achieve 520 miles range, according to the EPA.
This is even better than Tesla’s (NASDAQ:TSLA) Model S that has range-rating of 412 miles. The Lucid Air Dream Edition R was also awarded the most prestigious title “2022 MotorTrend Car of the Year” in the first year of its production.
Further, the company plans to launch three new car models in the next few years. This includes EV Grand Touring, Touring and Air Pure models, which should further boost deliveries. Over the long term, the management aims to roll-out low cost EVs for masses. This is likely to help in boosting the addressable market and global market share.
Lucid: Stepping-Up Production Capacity
In an effort to capitalize on an expected Lucid Air demand and bring down EV costs, management is ramping up its production capacity. The company commissioned operations in its advanced manufacturing plant in Casa Grande, Arizona in Q3 2021 with manufacturing capacity of 34,000 vehicles per year.
Lucid plans to add production capacity to 90,000 vehicles per year in this facility by the end of 2023. The company is also targeting production of its Gravity SUV to its line-up by late 2023, which should better enable it to capture market share in the passenger vehicle segment.
According to Lucid Motors, “The phase 2 expansion is expected to add 2.85M sq. ft. of production footprint and will further vertically integrate production processes.” The company has already begun investment in property, plant and equipment associated with Phase 2 expansion.
Expanding Footprints Internationally
Supplementing these efforts are ongoing expansion of retail, delivery and service capacities. At the end of Q3 2022, Lucid expanded its footprint to 13 locations in key geographies across the United States.
Management plans to broaden the company’s reach by foraying into the international markets, including Canada, EMEA and China. In addition to this, management intends to open manufacturing facilities in Saudi Arabia and China, given the growth potential, in terms of order size, in these markets.
Given these facts, Lucid has ambitious long-term plans, but local manufacturing in key markets will help in cost reduction.
Bottom Line on LCID Stock
The company is currently trading at a trailing 12 months price-to-book ratio of 12.79x. This is much higher than the sector median of 2.58x. This premium valuation is warranted on the back of its aggressive expansion plans, expected new product launches and encouraging demand for its product.
Lucid Motors is in its growth phase. As the company expands operations globally and ventures new geographies, it’s positioned to benefit.
Heightened need for decarbonization should support demand for EVs globally. And Lucid, with its superior technology, is well-positioned to garner higher a share of this space.
The company has $4.4 billion in cash and cash equivalents at the end on Q3 2021 from its recent reverse SPAC merger. This, along with its $2 billion issuance of convertible notes makes it well-funded to carry out its expansion plans. The upcoming fourth-quarter results should act as a catalyst to jumpstart LCID stock toward greater gains.
On the date of publication, Sakshi Agarwalla 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.
Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.