Adam Jonas and the team over at Morgan Stanley just initiated coverage on Lucid Motors (NASDAQ:LCID), and they aren’t impressed. Adam slapped Lucid with an “Underperform” rating and a $12 price target. However, we remain as bullish as ever on LCID stock and aren’t concerned.
Morgan Stanley’s analyst had a few key points for his bearish reading.
For one, Jonas believes Lucid’s valuation implies a high probability of big market share gains, high profit margins, or both. The problem here is that the team doesn’t see those things happening. They don’t believe the super-premium electric vehicle (EV) market is that big, and they see the competition as a huge headwind for the EV company.
We really respect Jonas. He’s a great analyst. He has some very prescient calls, and on a lot of things, we see eye to eye with him. And we’ve seen eye to eye with him on these things for several years. He’s one of the best analysts in the business.
But, we respectfully disagree with his analysis of Lucid Motors and think he’s missing the boat. He’s failing to see the forest for the trees.
His initial thinking is spot on — the valuation does imply an unusually high probability of success. And we think it absolutely should.
Where our viewpoints differ is in how we see Lucid Motors evolving as the EV market rapidly grows.
LCID Stock: EVs and Lucid Motors Are Both Here to Stay
The EV industry is a proven industry that is very much primed for exponential future growth. And a company’s ability to succeed in a proven industry ultimately comes down to its ability to execute, which is a direct byproduct of its team’s competence.
And Lucid Motors has the best team in the business.
We’ve covered this several times, but we’ll recap it again here.
Basically, Lucid is a premium blend of talented individuals from the best companies out there.
The same folks who helped build Tesla (NASDAQ:TSLA) and create a multi-hundred-billion dollar empire now work at Lucid Motors. These folks are working alongside top Apple (NASDAQ:AAPL) executives and well-respected automotive industry veterans to make this EV company a future ubiquity. It really doesn’t get any better than that.
Plus, Lucid Motors is funded by some of the deepest pockets in the world — the Saudi Public Investment Fund. This extremely talented team has unmatched resources to execute its vision. The probability of success here is, in fact, incredulously high.
Now, Jonas makes the excellent point that the super-premium EV market isn’t that large. That’s true — it isn’t.
But Lucid’s end goal is not to offer a sole, premium EV.
Lucid’s Strategy
Lucid’s plan is to sell a bunch of super-premium EVs and foster second-to-none brand equity first. Afterward, the company can leverage that brand equity and economies of scale to produce and sell cheaper EVs down the road, with that same brand equity and those same profit margins.
It’s a page right out of Tesla’s playbook. Tesla began as a super-premium EV maker. But now, Tesla is just an EV maker.
Lucid Motors will follow that same tried-and-true path.
So, to say that the addressable market here is only really expensive EVs is short-sighted. That’s the addressable market for maybe the next two years. By 2030, the total addressable market will be every car at every price point.
As far as margins, we are all aware battery costs are declining, and economies of scale in auto manufacturing drive reductions in production costs. So, unit input costs should fall over time. As long as unit revenues stay high, then unit profit margins should be robust at scale. And unit revenues should stay high, because Lucid is strategically growing its business in a way so as to maintain ultra-high brand equity.
In other words, we think there is indeed a very high probability that Lucid Motors turns into a major automaker one day across all points, and that its business will feature industry-leading profit margins.
If you believe that to be true, then LCID stock is a no-brainer buy below $20.
We think this is one of those stocks that you buy today, cost-average into over the next several years and then consider selling by 2025 — when it’s a $200-plus stock.
Naturally, LCID is ranks among my favorite stocks in the EV industry, or any industry for that matter. But there are many more that make my list. And some that I like more than Lucid stock.
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Happy investing.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
