On balance, I’ve been consistently optimistic about Lucid Group (NASDAQ:LCID) stock. Lucid is one among a growing number of electric vehicle manufacturers attempting to take on sector dominance by Tesla (NASDAQ:TSLA).
In fact, Lucid CEO Peter Rawlinson was a former chief engineer of Tesla’s Model S, adding some intrigue to an already enticing LCID stock.
While proponents will find myriad reasons why they’re so gung-ho about Lucid, for me, the primary bullish catalyst is its target audience. Unlike other EV makers who are attempting to push down the price of their rides, Lucid has no pretense about what it wants, which is to sell to rich people.
Naturally, with so many discussions about the widening wealth gap and calls for social equity, catering to the affluent isn’t exactly a popular concept. Therefore, LCID stock may not rank so highly with the environmental, social and governance (ESG) crowd. That said, money talks, and the smelly stuff walks.
Well, it’s turning out that LCID stock has been doing a lot of walking — the unpleasant kind, where you know you stepped on something and it’s going to take a while to clean off.
On a year-to-date basis, shares are down nearly 37%. Are the rich failing Lucid?
A Caveat for LCID Stock
If history is any guide, Lucid may appear to be on the right track, serving customers who can actually afford fully functional EVs. And by fully functional, I’m not talking about electric trikes or super-compact vehicles. I’m talking about genuine, full-sized EVs that function like any other normal car, aside from the propulsion aspect.
As author Robert Bryce noted wryly, “EVs are coming down in price, but they are mostly being purchased by the Benz and Beemer crowd. The average household income for EV buyers is about $140,000. That’s twice the U.S. average.” On that basis, the company behind LCID stock makes sense: it’s producing high-quality EVs for a discerning, well-capitalized audience.
However, the trajectory of advancing technology is for products to go down in price, not up. For instance, I’m sure many of you remember when flatscreen TVs first hit retail stores. They represented a massive paradigm shift from the bulky cathode-ray tube TVs but flatscreens were expensive then. Not anymore — at least not the standard variety.
It’s the same principle with automotive technology. Back in the glory days of the American automobile, it was not unusual to see a variety of manufacturers, but as competition expanded — especially from overseas — the U.S. auto industry saw significant consolidation.
The lesson behind the lesson: if you didn’t effectively appeal to regular-income consumers, you were dead in the water. Thus, it remains to be seen if LCID stock can stay elevated for the long haul.
Economic Undertones Help Lucid
Although the future for Lucid is difficult to decipher, in the intermediate term, LCID stock still maintains substantial credibility. For one thing, the EV makers that are into production now or will soon launch products must compete on present realities.
What I mean is that the consumer base isn’t going to dramatically change in one or two years. If the average household can’t afford an average-priced EV right now, it’s unlikely that waiting 24 months will do anything.
Indeed, waiting 24 months might see the average household lose wealth or purchasing power. As I mentioned in my interview with CGTN America anchor Sean Callebs recently, there are many businesses that are actually absorbing rising costs due to competitive concerns.
Therefore, the inflation problem that everybody’s talking about could be worse down the line unless the Federal Reserve takes decisive action.
Well, if inflation does get worse, that’s going to logically hurt middle-income workers who must find ways to deal with rising prices. But the affluent? Yeah, they might feel it but not like regular folks. Thus, LCID stock, for the time being, is somewhat insulated from economic woes.
Still the Right Decision
Now, the caveat to the caveat I mentioned earlier is that while advancing technologies tend to drop prices for tech-integrated goods, it might take a while for that decline to materialize. We may still be in the early stages of the EV rollout, considering that government agencies must develop infrastructures to make electric transportation truly viable.
So even taking into account the price-deflationary nature of technology, LCID stock may have a long pathway for upside. Plus, if Lucid dominates the upper echelon of the income bracket, who’s to say it can’t redirect funds to compete on the lower end?
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
