Since last year’s SPAC listing, Lucid Group (NASDAQ:LCID) stock has turned out to be a high-beta stock. The volatility in the stock is not surprising with the markets in a price discovery period for the business. Further, there has been ample new flow specific to the company that has increased the volatility.
LCID stock has witnessed a relatively swift correction from closing highs of $55 toward the end of November. Currently, the stock trades lower by 53%.
There has been a broad-based correction for electric vehicle stocks. Besides that, equity dilution and intense competition are likely reasons for LCID stock trending lower.
In the current year, there will be around 500 different EV models globally. This puts into perspective the competition that Lucid faces. Can positive industry tailwinds more than offset the competition headwinds?
I believe that Lucid will gain market share in the coming years. One reason is the technology differentiation factor. However, that’s not the only catalyst.
As an example, Lucid is the first EV that’s certified by the EPA with a single-charge range of 520 miles. At the beginning of the year, Mercedes-Benz boasted of a latest EV concept with a 620-mile range. Considering the rate of investment in product development in the EV industry, there will be players that better Mercedes in the coming quarters.
Clearly, technology is a key factor, but not the only factor that will ensure survival.
Factors Support LCID Stock Appreciation
With competition, the factors that give Lucid an edge include wider presence and product development. Presence in multiple geographies will ensure a bigger addressable market. However, a good team and a quality product also needs financial backing, which LCID stock has.
Lucid Motors reported cash in hand of $4.8 billion as of Q3 2021. In December 2021, Lucid raised $2.0 billion through exercise of convertible note green-shoe. Lucid is backed by Saudi Arabia’s Public Investment Fund (PIF). It therefore seems unlikely that financing growth and product innovation will be a challenge.
Another growth factor is the company’s vision. The first model, Lucid Air, is targeted toward premium markets. Even with focus on several geographies, the addressable market is likely to be limited. In 2022, a less expensive version of the luxury sedan will be launched. The SUV, Project Gravity is planned for 2023. It’s also likely to have a relatively lower pricing.
However, the game-changer will be plans for a $25,000 electric vehicle. Last year, the company’s CEO mentioned that “six well-known automakers have reached out to him over the last month and expressed interest in Lucid Motors’ technology.” The plan is to launch a car for the mass market through a partnership.
The key point is that a mass market car will significantly increase the company’s market share growth potential. As an example, India’s EV penetration is less than 1%. Higher EV price and poor charging infrastructure are headwinds for growth.
However, between 2021 and 2030, the Indian EV market is expected to grow at a CAGR of 90%. With a mass market car, Lucid can tap this potential.
It’s worth noting that there are opportunities to spread wings with growth in market share and financial flexibility.
Tesla (NASDAQ:TSLA), as an example, will also enter the commercial EV segment with Semi. Similarly, XPeng (NYSE:XPEV) is planning flying cars by 2024 or 2025, which can also operate on roads. As technology continues to develop, there will be continued growth opportunities.
For now, Lucid has seen a healthy response for its initial model. The company has also opened online booking in multiple countries, which will boost the order book for 2022.
From a financial perspective, free cash flows will remain negative in the coming years. However, the markets are likely to value Lucid on the basis of market share growth and product development. I am optimistic on that front.
The EV maker is set to report earnings on Feb. 28. Zacks shows a consensus estimate of a 26-cent loss; Capital IQ has two analysts with a mean estimate of a 30-cent loss. The company’s third quarter report in mid November was 19 cents short of Street expections.
LCID stock therefore looks attractive after a meaningful correction from November 2021 highs. I would bet on another strong rally in the coming quarters.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.