Lucid Motors Can’t Justify Its Current Price, But Watch for a Pullback

·5 min read

I’m sure that the recent fall in EV company Lucid Motors (NASDAQ:LCID) stock is profit-taking and not something else.

The Lucid Motors (LCID) Plant in Arizona.
The Lucid Motors (LCID) Plant in Arizona.

Source: Around the World Photos / Shutterstock.com

With reservations increasing for Lucid Air, things are looking up and up for the EV manufacturer.

In turn, LCID stock has seen triple-digit gains over the last year. Despite the recent dip, this is a lucrative investment for those looking to invest long-term.

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Lucid Motors has seen an increase in reservations for its luxurious Lucid Air sedan, with approximately 17,000 reservations now compared to 11,000 reservations in July.

Lucid Motors is scaling up the production of electric vehicles with a target capacity exceeding 34,000 units at its new factory in Arizona.

Plans are in place to eventually triple the production capacity. The company is on track to exhaust 50% of its production capacity through reservations alone, which is an impressive feat.

The Lucid Air Dream Edition sedan just obtained the highest EPA rating for EVs, with a range of 520 miles. It beats out its nearest competitor by 100 miles. Lucid Motors has set the bar for electric car buyers to aspire towards.

The Lucid Air sedan and other upcoming editions can become best-selling models once they reach mass production capacity.

As a result, the automaker has significant potential to increase sales in this segment of their vehicle lineup with just one model – especially considering the level of interest in its products.

Investors are optimistic about Lucid Motors because they see it as a potential replacement for Tesla (NASDAQ:TSLA).

If the company can stay out of trouble and meet its guidance, then investors think there’s no telling what will happen with their stock price.

Lucid Motors Versus Tesla

Lucid Motors’ CEO and CTO, Peter Rawlinson was an engineer at Tesla who helped design the Model S.

He also had experience designing luxury vehicles for companies like Jaguar or Lotus, which makes him a perfect fit to lead this new company into success.

Back in 2015, Tesla sold 50,580 electric cars. In five years, Tesla sold more than 250,000 electric cars and became one of the most profitable automakers in America.

Lucid Motors is on track to deliver 250,000 electric vehicles by 2026, with revenue of $22.75 billion within five years. One potential roadblock is manufacturing capacity. The company’s current facilities can produce up to 34,000 vehicles per year.

It will be difficult for them to meet their production goals if they are don’t expand quickly enough, and that means spending cash. If Lucid Motors’ delivery guidance is thrown off for any reason and they have to delay production, investors could balk.

It will have a much bigger impact on consumer preferences. While Lucid Motors may meet delivery expectations, there’s no guarantee because the company is still at an embryonic stage.

Valuation Will Keep Investors at Bay

Lucid will release its high-margin vehicles before expanding to higher volume, less expensive models.

The electric car company is following in the footsteps of Tesla by limiting its advertising spending and focusing on building a network of showrooms and service centers and letting customers do all that work for them.

Unlike Tesla, Lucid believes that it could save a lot of money by avoiding investing in its fast-charging network.

Lucid isn’t putting all its eggs in one basket and instead hopes third-party charger stations will help make up for any gaps while still providing consumers with many benefits.

Lucid has a strong preference for in-house production and is very protective of its intellectual properties.

This and an emphasis on quality control over time have made Lucid decide to manufacture all their components at its Arizona plant instead of outsourcing or licensing out some aspects as they used to.

There are companies like Fisker who are going for an asset-light approach. Understandably, there are merits to both models.

Institutional knowledge is integral to the success of any company. It’s a shared set of key concepts, experiences, and expertise that companies use as they work together within their organization’s structure.

Outsourcing to third parties means you cannot build up the knowledge base needed to become a successful standalone enterprise. Hence, investors will value this side of Lucid.

Lucid Motors looks like an overvalued company with no vehicles on the market.

LCID Stock Needs to Cool Down

LCID stock has a high valuation and is expected to see rapid growth. Still, it has the best chance among all available EV manufacturers of growing into this value over time.

Lucid Motors has the potential to be a hot thing in more ways than one. With high expectations from investors, it will certainly not disappoint them if this company can meet their guidance.

However, there is a long time to go before the EV company can justify its market cap. The valuation remains high, and the stock has proven itself volatile in recent months, making it a risky investment for many investors.

The electric vehicle revolution is accelerating, and people are starting to see that they can’t live without these vehicles. So, there will come a time when LCID stock grows into its valuation. However, it’s best to stay away and wait for a dip before that.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions 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.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.

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