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After hitting highs in 2021, some EV stocks have lagged the broader market due to slowing consumer spending and weak demand. However, given the global shift to EVs, this pullback presents an opportunity for investors to buy on the edge and gain exposure to a rapidly expanding addressable market. One of the EV stocks that got beat up was Lucid Group (NASDAQ:LCID), trading 95% below its high. I have a bullish view on LCID. The reason for this is LCID’s expanded manufacturing capacity, impressive growth forecasts, and expansion of its vehicle portfolio.
Lucid Group Overview
Lucid is a technology and automotive company operating in the luxury electric vehicle space. Its first vehicle, called Lucid Air, is the longest-range, fast-charging vehicle on the market today. Lucid Air is a battery-powered luxury sedan with an estimated range of 516 miles on a single charge.
Lucid Group sells automobiles to consumers through its retail sales network and online. By the end of 2022, we will have 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 consisting of service centers in metropolitan areas and a fleet of mobile service vehicles. In addition to our in-house capabilities, Lucid has an approved list of trained collision repair shops that serve as repair hubs for our mobile products.
Focus on expansion
Lucid will begin delivering vehicles in late 2021 and plans to launch additional vehicles in the coming years. The company has already begun design and engineering work on the Lucid Gravity, a luxury sport utility vehicle scheduled to go on sale this year. The company now plans to expand its manufacturing advances to develop higher volume vehicle segments.
Lucid Air is manufactured at the company’s greenfield electric vehicle manufacturing facility in Casa Grande, Arizona. Once the manufacturing facility is fully constructed this year, annual production capacity will be 90,000 units, rising to 34,000 units in 2022.
Lucid is also building an EV manufacturing facility in Saudi Arabia and expects to ship 155,000 units annually, depending on competition. In fact, Saudi Arabia’s Public Investment Fund has invested $5.4 billion in Lucid since 2018 and has agreed to purchase 100,000 vehicles over 10 years.
Expanding Lucid should help you achieve operational efficiency. Additionally, a focus on vertical integration should improve profit margins over time.
How did Lucid Group perform in 2023?
Lucid Motors produced 8,428 vehicles and delivered 6,001 vehicles in 2023. However, this was well below the company’s initial production forecast of 12,000 units at the midpoint of its guidance.
Lucid Group manufactured 1,550 vehicles, delivered 1,457 vehicles, and generated revenue of $137.8 million in the third quarter of 2023. By comparison, capital expenditures totaled $192.5 million in the September quarter.
Lucid’s net losses over the past three quarters totaled more than $2 billion due to high cash burn rates. To reduce operating costs, the company was forced to reduce its workforce by 18% and recently announced the resignation of Lucid’s CFO, Sherry House.
Lucid Group stock price remains volatile
The automobile manufacturing industry is highly capital intensive. Additionally, Lucid Motors needs to expand its manufacturing capacity many times over to enjoy economies of scale and achieve stable profit margins. For example, Tesla (NASDAQ:TSLA) posted a positive first-quarter operating profit in the third quarter of 2018 and ended the year with 245,200 vehicle deliveries.
In comparison, Lucid Motors ended 2023 with fewer than 9,000 vehicle deliveries. This suggests that the company needs to allocate significant resources before it can generate stable profits.
Additionally, while Tesla enjoyed first-mover advantage, Lucid Group must grapple with competition from emerging and traditional EV manufacturers such as NIO (New York Stock Exchange:Nio), Ford (New York Stock Exchange:F), General Motors (New York Stock Exchange:GM).
Lucid also ended the third quarter with $5.5 billion in total liquidity, but will need to raise capital multiple times over the next 10 years. Increasing equity would dilute shareholders, while debt would weaken the balance sheet.
Considering these factors, investors should prepare for tough conditions for Lucid stock in 2024 and beyond.
What is the target price for LCID stock?
Of the 9 analysts covering the LCID stock, 1 have a buy recommendation, 8 have a hold recommendation, and 1 have a sell recommendation. The consensus rating is Hold. LCID’s average price target is $5.09, 51% above the current price.
last point
It’s clear that Lucid Motors is a high-risk, high-return investment. To regain investor confidence, EV manufacturers need to increase production and deliveries, improve profit margins, and navigate an uncertain macro environment.
Still, it’s worth considering, as it’s trading at a deep discount to consensus estimates and should benefit from multiple secular tailwinds over the next two decades.
disclosure
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