Can Production Ever Meet the Valuation of LCID Stock?

Lucid Group (NASDAQ:LCID) entered trading on Feb. 7 with a market capitalization of around $45 billion. The company plans to make and sell 20,000 Lucid Air sedans this year at an average price of around $120,000 at the midpoint. Lucid will also scale production in the coming years. In 2025, it hopes to build a factory in Saudi Arabia. But I still don’t see how LCID stock can justify its market cap.

Assume production doubles and doubles again. Assume Lucid Group can create revenue beyond the sale, like Tesla (NASDAQ:TSLA) does. That means Lucid might have revenue of around $10 billion in 2024.

However, the world won’t be standing still during that time. Rather, companies like General Motors (NYSE:GM), Ford (NYSE:F), Volkswagen (OTCMKTS:VWAGY) and the rest of the industry will also be focusing on electric vehicles (EVs). They have already started to. And not everyone can win.

The Advantages of LCID Stock

Lucid has all the advantages that Tesla had several years ago.

For one, it has a great car. The Lucid Air was voted the 2022 “Car of the Year” by MotorTrend. The Air also aims at the high end of the market, just as Tesla did. On top of this, Lucid has production facilities in Arizona, capital from Saudi Arabia and more.

Fellow InvestorPlace contributor Chris Tyler calls LCID stock a buy. Tyler likes the way it’s bouncing off “Fibonacci support” after losing half or more of its earlier gains. Additionally, Tyler likes the company’s plans to launch three new models this year. He calls Lucid Group “next level.”

InvestorPlace’s Eddie Pan also thinks the bottom is in. Pan blames the “valuation reset” in the Nasdaq for the stock’s recent trouble. Currently, shares of LCID stock are down 28% year-to-date (YTD). However, after selling $2 billion in convertible debt (as Pan notes), the company now has $6 billion in cash on hand.

Why Be Bearish?

So, why be bearish on LCID stock? My own bearishness isn’t based on the U.S. Securities and Exchange Commission (SEC) investigation I mentioned back in December. I’m also not bearish on Lucid because Morgan Stanley (NYSE:MS) surveyed clients and found they prefer Rivian (NASDAQ:RIVN) instead. And it’s not just about Lucid’s insane valuation, although that is part of it.

Instead, my bearishness is also about Tesla, which isn’t slowing down. Tesla plans to increase production by 50% this year and open new factories in 2023. That could soon put its production at over 2 million cars and trucks. Lucid Group says it will hit 500,000 vehicles by 2030.

On top of this,  electric vehicle production is rising everywhere, especially in China which is one of the largest EV markets. China delivered almost 3 million electric cars last year. That was almost 15% of its total new sales.

And they weren’t all high-end. The top-seller was the Hongguang Mini, developed in a joint venture between GM and a state-owned company. The Mini starts at a price of $4,500.

Maybe the Mini can’t make it in the United States, with its small size and top speed of 62 miles per hour. But even if a heftier version is offered at four times that price, it’s still a bargain in the U.S. market. Volkswagen is already planning an EV model that would cost just $24,000 as well.

The Bottom Line on Lucid Group

At heart, an EV is a simple machine. The motor has just one moving part. It’s easy to make, the reverse of the electric generators we’ve had for centuries. The value is all in the battery, as is most of the cost.

U.S. car buyers have been engaged in an arms race with ever-bigger SUVs and pick-up trucks. But Americans have also continued to move deeper into cities. Most also live modestly. In 2020, the median household income was $67,521, or $10,000 under the starting price of the Lucid Air.

As the mass market goes electric, I believe production will adapt to needs. I suspect the high end of the market will become saturated by the middle of the decade. That’s when Lucid says it’s going to be ready for take-off.

On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any position 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.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.

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