Lucid Motors Stock Wants to be the Next Tesla. Can it?
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Regular readers know that one of our mantras is that you can’t invest in the market with the intention of finding the next Microsoft. You’d do nearly as good buying a lottery ticket with your luckiest numbers. We may soon have to tweak that platitude and swap Microsoft with Tesla (TSLA). Five years ago, Tesla sported a market cap of nearly $35 billion. As of this year, it entered rarefied air – one of just five companies (including Microsoft) valued at $1 trillion or more. Tesla stock is half meme, half the future of transportation – a mix of hype and the potential to change the world. To be clear, neither is a prudent investment strategy, but such is the market today.
While there are plenty of contenders vying to be “the next Tesla,” two other electric vehicle (EV) makers have suddenly shot to the top. Last month, we wrote about how Rivian (RIVN) was a risky play on EVs. This month we’ll analyze Lucid Motors (LCID) stock. Can this meme stock become the next Tesla?
About Lucid Motors Stock
Founded in 2007 as Atieva, Lucid Motors started life as a humble EV battery manufacturer. Over the years, the company expanded its efforts by developing complete powertrain systems. In 2014, it started designing its own electric vehicle and made the name change a couple of years later. The company might have ended up on the startup heap of failed ventures had Saudi Arabia’s Public Investment Fund not stepped in with $1 billion in 2018. Total funding hit about $1.3 billion prior to the company completing its merger with Churchill Capital Corp IV – CCIV, a special purpose acquisition company (SPAC), back in July. The deal netted Lucid Motors about $4.4 billion.
The stock has been the model of volatility. It gained nearly +500% on the original news of the SPAC deal back in February, dropped back to slightly less insane prices for months, but then climbed back to its previous lofty valuation in recent days.
It blew past Ford (F) in market cap, and even briefly surpassed General Motors (GM) in value. Ford generated $127 billion and GM $122 billion in revenue in 2020. Lucid Motors made less than $500,000 last year and was still at less than $1 million in revenue through the first nine months of 2021. Money should finally start flowing this last quarter, as the company starts delivering its luxury Lucid Air sedan to the first customers. Its projection of $97 million for the year still seems optimistic. And it would still sport a ludicrously high simple valuation ratio of about 800 based on market cap and revenues. We don’t touch anything higher than 40.
The stock is obviously way overvalued. The question is whether Lucid Motors would make a good investment in EVs after the Robinhood and Reddit rogues move on to their next meme stock.
Riding on Air
If Lucid Motors is to find long-term success, it will have to prove that it can scale its technology and production beyond just a few tens of thousands of luxury EVs. Certainly, no one is disputing its engineering prowess. The electric motor can fit in a carry-on suitcase, with a record-setting range of more than 500 miles on single charge for its limited-edition models. Some variants of the Lucid Air will be able to charge in just 20 minutes to provide 300 miles for that quick trip to Vegas. At 1,000-plus horsepower, the Lucid Air Dream Edition can go from zero to 60 in less than 2.5 seconds. The Lucid Air was just named the 2022 MotorTrend Car of the Year.
The Dream Edition, limited to just 520 units, can be had for $169,000. The run-of-the-mill Lucid Air Pure sports less than half the horsepower with a range estimated at more than 400 miles, but retails starting at “just” $77,400 before tax credits. The company already has orders for more than 17,000 Lucid Air models and expects to churn out 20,000 in 2022, which would bring in about $2.2 billion in revenue. Lucid Motors also expects to offer a luxury SUV called Lucid Gravity in 2023, before producing EVs for the common folks sometime beginning in 2025.
Lucid Motors Versus Tesla
Tesla has its cult of personality built around Elon Musk. For Lucid Motors, it’s CEO and CTO Peter Rawlinson, who engineered the Model S, the sedan that put Tesla on the map. The guy was also a leading engineer at both Jaguar and Lotus, so he knows something about designing luxury vehicles. How much he knows about steering a company to success remains to be seen.
Similar to our assessment of Swedish EV manufacturer Polestar, the projections from Lucid Motors on vehicle production and associated revenue follow a similar trajectory as Tesla, beginning in 2013 when the Musk-led company produced more than 22,000 EVs with revenue of about $2 billion. Five years later, Tesla delivered nearly a quarter of a million EVs on revenue of more than $21 billion. Lucid Motors predicts it will reach the benchmark of about 250,000 vehicles by 2026, with revenue of $22.75 billion. Of course, it doesn’t mean that Lucid Motors can deliver on those numbers, but it’s a benchmark that tells us that it can be done and not just the musings of some overpaid MBA. (It still might just be the musings of some overpaid MBA.)
One potential roadblock is manufacturing capacity. The company’s current manufacturing facilities are designed to produce up to 34,000 vehicles annually. No doubt it will burn through its war chest quickly to expand capacity to meet production goals.
Should You Invest in Lucid Motors Stock?
Comedian Steven Wright once quipped, “Everywhere is within walking distance, if you have the time.” Given enough time and money, perhaps Lucid Motors will be able to produce enough cars and realize profitability. That seems pretty obvious but few people seem to be factoring in those wild cards as they turn Lucid Motors stock into a short-term jackpot. Remember that Tesla – if you can trust a Musk tweet – was only a month away from bankruptcy in the midst of scaling production. Lucid Motors has also struggled to stay afloat in the past, and the company is just as likely to flop as flip a profit in the next five years.
Tesla also had the first-mover advantage, surviving long enough to establish its brand and finally become profitable. The new generation of EV manufacturers like Lucid Motors and Rivian aren’t just competing to become the next Tesla. They’re competing with just about every major automaker on the planet. Companies like GM and Volkswagen (VOW.F) are committing to going fully electric by 2035, with GM saying it will have 30 new EV models as soon as 2025. In effect, investors keen on the risky EV theme could take the buy-and-hold route with an investment in the 113-year-old Detroit company or any of its other peers as they make the shift away from ye olde combustion engine.
The current run on Lucid stock happens to coincide with the rabid appetite for anything green given the recent passage of the $1 trillion U.S. infrastructure bill. But there are already signs that the ardor with everything EV is cooling off. Rivian stock took off like a rocket after its IPO earlier this month at $78 a share. It peaked at $172 in about a week, but has already fallen back to about $118 a share as of Nov. 22 – all in less than two weeks. Lucid Motors is riding a similar wave of meme-based enthusiasm that could crash at any moment. As we’ve said before, electric vehicle stocks should be approached with a great deal of caution. But if you’re the type of person who takes investment advice from Reddit, then backup the electric truck and load it up with Lucid shares. You’re going to lose all your money anyway so just get the pain over with. (The ticker symbol is LCID since so many of you ask Google that question.)
Conclusion
In the 20th century, we had the Big Three – Ford, General Motors, and Chrysler. Now, in the 21st century, it’s become Tesla, Rivian, and Lucid Motors. Time will tell if this new generation of automakers will enjoy the longevity of the old guard. The odds are against it. In the late 1970s, for example, the organizations in the S&P 500 index had been on that list for an average of about 35 years, according to McKinsey & Company. Today, the average tenure is closer to 20 years – and shrinking. They don’t make them like they used to.
Share
Current price: $51.12
Market cap : $84B
After Lucid’s jump on Tuesday, analyst Adam Jonas at Morgan Stanley raised his price target on Lucid stock, but only to $16 a share. Lucid shares were hovering above $55 a share at the time. So although Jonas is impressed by Lucid’s reservation numbers and its goal to deliver 20,000 cars in 2022, among other things, he doesn’t see the stock worth more than $16 a share just yet.
Adam is pulling arbitrary numbers out of his ass in hopes of making MD before he’s 40. Does anyone take these analysts seriously?
We’re going to disagree with Mr. Jonas’s assessment. We think he is WAY off here and we’re countering him with our own price target of $15.95.
Joe, thank you for one more clear and straight to the point piece. There is not enough space for so many competitors in this market. I am wondering if Lucid and Rivian founders really believe they will be able to get big enough to compete in this market, of traditional products embedded with disruptive technologies. They probably believe, but I won’t be surprised if they end up being the A in a M&A process, of course not before their struggles became apparent and their insane valuations come back to earth.
We really appreciate the kind words Joao! You are correct that there seems to be too many competitors now, especially when you throw traditional automakers into the mix. Any sort of economic downturn could result in some bankruptcies and then fire sale of assets. Retail investors who think they’re chasing the next Tesla will learn this the hard way.
When it comes to EV makers we need to have a serious look at Hyundai.
Hyundai’s Ioniq 6 goes on sale in the first half of 2023.
Good suggestion here to consider that “the next Tesla” could be a tenured automaker. We’re going to be revisiting the EV thesis in the coming weeks.