After reaching its peak in 2021, many electric vehicle (EV) stocks are underperforming the broader market due to a slowdown in consumer spending and muted demand. However, this downturn presents an opportunity for investors to capitalize on the dip and gain exposure to a rapidly expanding market driven by the global shift towards EVs. One of the undervalued EV stocks is Lucid Group (NASDAQ:LCID), currently trading at a 95% discount from its peak. I am optimistic about LCID due to its expanding manufacturing capabilities, strong growth projections, and broadening vehicle portfolio.
An Overview of Lucid Group
Lucid is a company operating in the luxury electric vehicle segment, combining technology and automotive expertise. Its initial vehicle, the Lucid Air, is currently the longest-range and fastest-charging car available in the market. This battery-powered luxury sedan boasts an estimated range of 516 miles on a single charge.
Lucid Group sells its vehicles through a retail sales network and online. As of the end of 2022, it had 31 studios and service centers in North America, three in Europe, and one in the Middle East.
The company owns and operates a vehicle service network, including service centers in major metropolitan areas and a fleet of mobile service vehicles. In addition to its in-house capabilities, Lucid has an approved list of trained collision repair shops that serve as repair hubs for its mobile offerings.
A Focus on Expansion
Lucid initiated vehicle deliveries in late 2021 and anticipates launching additional vehicles in the coming years. It has already commenced the design and engineering work for Lucid Gravity, a luxury sports utility vehicle slated for release this year. The company is now focused on expanding its manufacturing capabilities to accommodate higher-volume vehicle segments.
The Lucid Air is produced at the company’s greenfield electric vehicle manufacturing facility in Casa Grande, Arizona. Once this manufacturing facility is fully operational this year, its annual output capacity will increase to 90,000 vehicles, up from 34,000 vehicles in 2022.
Lucid is also constructing an EV manufacturing facility in Saudi Arabia, where it aims to ship 155,000 units annually, posing competition for other players. Notably, Saudi Arabia’s public investment fund has invested $5.4 billion in Lucid since 2018 and agreed to purchase 100,000 vehicles over a 10-year period.
Lucid’s expansion efforts are expected to help achieve operational efficiencies. Moreover, its emphasis on vertical integration is anticipated to bolster its profit margins over time.
How Did Lucid Group Perform in 2023?
In 2023, Lucid Motors manufactured 8,428 vehicles and delivered 6,001 vehicles, which fell short of the company’s initial production estimates of 12,000 vehicles at the midpoint of its guidance.
During Q3 2023, Lucid Group manufactured 1,550 vehicles and delivered 1,457 vehicles, generating $137.8 million in sales. In comparison, its capital expenditures totaled $192.5 million in the September quarter.
Over the past three quarters, Lucid incurred net losses exceeding $2 billion due to its high cash burn rates. To streamline operating costs, the company had to reduce its workforce by 18% and recently announced the resignation of Sherry House, Lucid’s CFO.
Volatility Ahead for Lucid Group Stock
The automobile manufacturing industry demands substantial capital investments. Additionally, Lucid Motors will need to significantly expand its manufacturing capabilities to benefit from economies of scale and maintain consistent profit margins. For example, Tesla (NASDAQ:TSLA) reported its first quarter of positive operating income in Q3 2018, ending the year with 245,200 vehicle deliveries.
In contrast, Lucid Motors concluded 2023 with less than 9,000 vehicle deliveries, indicating that the company will need to allocate considerable resources before achieving consistent profitability.
Moreover, while Tesla enjoyed an early-mover advantage, Lucid Group will face competition from new as well as established EV manufacturers such as NIO (NYSE:NIO), Ford (NYSE:F), and General Motors (NYSE:GM).
Furthermore, despite having $5.5 billion in total liquidity at the end of Q3, Lucid will need to raise capital multiple times in the next decade. Equity raising will lead to shareholder dilution, while debt financing will weaken the balance sheet.
Given these considerations, investors should brace themselves for a challenging journey with Lucid stock in 2024 and beyond.
What is the Target Price for LCID Stock?
Of the nine analysts covering LCID stock, none recommends a Buy, while eight recommend a Hold, and one recommends a Sell, resulting in a Hold consensus rating. The average price target for LCID stock is $5.09, representing a 51% upside from the current price.
The Final Takeaway
It is evident that investing in Lucid Motors comes with high risks but also offers potential for substantial rewards. The EV manufacturer must increase its production and delivery volumes, enhance profit margins, and navigate through an uncertain macro environment to rebuild investor confidence.
However, at its current price, the stock is trading at a significant discount to consensus estimates and stands to benefit from multiple long-term growth drivers, making it worthy of consideration.
Disclosure
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