5 min read

Is Lucid Overpriced?

2021 was a great year for electric vehicles, with the industry witnessing a surge of the most hyped IPOs in history. Lucid Group (LCID, $17.30) was one of the many EV companies to go public during that period after merging with a special purpose acquisition company (SPAC), fetching $4.5 billion in fresh capital. Even Wall Street cheered the company on after their Air Dream sedan (its first electric car) outpaced Tesla’s battery, travelling farthest on a single charge, sending the stock shooting. Lucid’s stock has been incredibly volatile since its listing, reaching 52-week highs of $57.8 in November 2021 and plunging to 52-week lows of $13.29 as the bear market crushes growth stocks.

Despite the stock running on low battery, the company itself continues to drive ahead, with partnerships and reduced car orders – in light of supply chains and logistics the EV maker revised its 2022 production target to produce 12,000 to 14,000 vehicles down from 20,000. Furthermore, Lucid has entered the extremely competitive luxury EV market, which already has many established brands like Porsche, Mercedes, and more. Investors might question whether the company can deliver growth inline with expectations, given its recent performance. Let’s take a closer look.

Competition

At present, the EV industry is projected to  grow $802B by 2027, with a 22.6% CAGR, and this is just the beginning. The EV market is heating up as new players enter along with a general public interest amid record-high gas prices, and the Biden administration aims for EVs to account for half of all new vehicles purchased by the end of the decade. As a result, EV makers are rushing to release new models.

Just last week, Volvo’s Polestar (PSNY, $9.77) launched on the market, gaining 14% on its first day, which could be trouble for Lucid as another established company enters the lucrative market. The big advantage for players like Tesla (TSLA, $686.06), General Motors (GM, $33.44), Ford (F, $11.52) and even Polestar vs EV startups is a loyal customer base, as consumers would rather spend that kind of money on a more reliable and established brand. Furthermore, current market conditions make it more challenging with new entrants, as supply chain issues and the cost of inflation in producing EV batteries have pressurised companies to increase their expensive cars evenmore.

In fact, Lucid was among the first EV makers to announce a price hike in early May to offset rising material and supply chain-related costs but did offer clients notice to reserve vehicles at previous prices before June 1st. As competition in the electric vehicle industry grows, Lucid may face stiff competition when it comes to acquiring customers if their production targets continue to decline, especially when the likes of Polestar and Tesla have the capability to ramp up mass production if needed.

Performance

Unlike many new EV startups, Lucid has been around since 2007, where it formerly operated as a battery technology company called Atieva. In 2016 the company rebranded and commenced the production of its first EV in September 2021, with deliveries beginning in October. Fast-forwarding today the company has distributed 360 Air Dream Sedans of the 700 produced, worth $169k each.

The company reported revenue of $57.7 million, $5.4 billion in cash, and a $597.5 million operating loss in the first quarter. But still intends on delivering 12,000 to 14,000 EVs down from its projected pre-ipo of 20,000 which is why its market cap of $28.9B is high in comparison to competitors. To name a few, Tesla has a market cap of $710.2B and trades 8.3x its projected sales of $86 billion in 2022. Rival Nio (NIO, $21.86), has a market cap of $36.5B with a share price of $21.86 has delivered 200,000 cars YTD. In contrast Lucid, with a value of about $29 billion, is priced at more than eight times 2023 sales of $3.5 billion with not as much production. Furthermore, analysts have set a median target of $30 for the company’s share price, expecting lows and highs of $12 and $43, respectively. The median target is +73.4% higher than the current share price of $17.30.

There are many factors contributing to Lucid’s high cost, but the largest shareholder, Saudi Public Investment Fund which owns roughly 61% of Lucid, is often cited as a reason behind the higher price tag, as investors believe the deep-pocketed state will fund Lucid regardless. Fortunately for Lucid, this will help it ride out financials.

New Service

At the beginning of June the EV maker launched Lucid Financial Services in collaboration with Bank of America, for its Lucid Air customers.The digital platform offers everything required during vehicle processing such as lease and loan purchase options to people looking to buy its all-electric sedan. The company’s new offering is a big step toward making this company a major EV brand; established automakers have their own financing arm. By streamlining the financing process, Lucid Motors can build consumer demand for its vehicles in line with its production ramp-up schedule.

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Past performance is no guarantee of future results. Your investment can fluctuate, so you may get back less than you invested. Consider each product’s risk(s) before investing. Baraka is not a financial adviser and therefore does not provide financial advice. Our content is informational only.

Iman Haider
5 min read