Lucid: This EV Stock Is A Buy On The Drop

Summary

• Lucid Group gave an update about its reservation status for the Lucid Air luxury sedan a week ago.
• Production of the Lucid Air, the firm’s first-ever commercial EV product, is now starting.
• Deliveries are set to begin this month.

Hiroshi Watanabe/DigitalVision via Getty Images

Shares of Lucid Group (NASDAQ:LCID) lost momentum last week, but I believe the drop puts the startup's EV stock back on the map.

Lucid is going through a major transformation and turning into a full-fledged EV maker. The ground-breaking EPA rating from September, which placed the Lucid Air luxury sedan at the top of the EV class, and surging reservations indicate more upside for the stock!

Data by YCharts

Business progress

Lucid generated considerable buzz in September when the Environmental Protection Agency gave Lucid’s first luxury sedan, the Lucid Air Dream Edition Range, a 520-mile EPA rating. No other currently available electric vehicle comes even close to the Lucid’s range rating, including Tesla (TSLA)’s Model S Long Range... which has a range of 412 miles. With the range-busting EPA rating, Lucid’s first-ever product made a splash even before it is available in the market.

(Source: Lucid Group)

Because of the Lucid Air's record travel range and publicity surrounding its EPA rating, strengthening demand can be expected to drive reservations higher. Based on a filing made three months ago, total reservations for the Lucid Air topped 10,000 in June. The total reservation number included reservations for the Lucid Air (the base model), Dream Edition, the Grand Touring edition, and both the Touring and Pure versions. Non-base models (like the Dream Edition and Grand Touring) have special configurations that are available at prices significantly above the $77,400 starting price (before consideration of a $7,500 federal tax credit). The Lucid Air Dream Edition has a sticker price of $169,000 while the Lucid Grand Touring costs $139,000.

The high price points for Lucid’s top-of-the-range sedans are not repelling potential buyers, it seems. In a reservation update made last week, the EV maker said that Lucid Air reservations now top 13,000… although the firm is not breaking paid reservations down by model/specification.

The reservation status for the Lucid Air has improved by 30% since June, with limited to no marketing from June to September, which means Lucid added an average of 1,000 reservations per month. Since the announcement of the Lucid Air’s record 520-mile range rating was made in the middle of September, we don’t know what impact the buzz announcement had on reservations… but I believe reservations increased materially after the EV maker received the EPA rating. Going forward, I expect the EV maker to see higher demand and strengthening growth in reservations as actual deliveries begin.

Lucid held a press event at its Advanced Manufacturing Plant (AMP-1) in Casa Grande, Arizona at the end of September where the first Lucid Air luxury electric sedan rolled off factory belts. The EV maker also confirmed that customer deliveries will begin in October… meaning Lucid is now transforming from a development stage into a production stage company. Because Lucid will begin customer deliveries this month, there is upside in reservations even before Lucid ramps up production. Initial reviews for the Lucid Air have been great and the start of actual customer deliveries will only help to create a bigger marketing opportunity for the firm.

In the short term, I expect Lucid Air to generate revenues of $1.40B to $1.75B, based off of 20,000 - 25,000 reservations. Longer term, I believe Lucid will grow into its annual manufacturing capacity of 53,000 vehicles. On a monthly level, this means Lucid could produce and deliver more than 4,000 vehicles... more if the EV maker adds manufacturing space to respond to strengthening demand. This may take 3-4 years to pan out but if the Lucid Air is as successful as I believe it will be based on initial reviews, then Lucid is looking at a minimum of $4.0B in revenues by 2025 (revenue estimate calculated assuming base configuration). Lucid’s $39.10B market value already anticipates a lot of this growth, but the EV maker is set to be the only company with a focus on the high margin luxury sedan market.

Data by YCharts

Turning to risks.

Moving into the manufacturing stage reduces the enormous risks that are normally associated with EV startups. Lucid has also been able to attract reservations without aggressive marketing tactics and the EPA rating lends the EV maker credibility as its first models roll off the assembly line. However, Lucid is no Mercedes and the firm has no significant manufacturing experience. Rivals are also not sleeping at the wheel and might offer similar products in the luxury sedan segment to compete with Lucid instead of ceding the entire market to a newcomer. Tesla is likely going to be Lucid’s main rival, although Tesla is not offering EV luxury sedan models (yet).

Final thoughts

Lucid's announcement last week is a testament to its accelerating evolution: The firm is moving out of the development stage and transforming into an actual EV production company… which means Lucid will be a lot easier to value in the future as the market gains a clearer picture of production capacity and potential for sales. I believe Lucid is primed for a top position in the EV luxury sedan segment and could generate 2,000 to 3,000 reservations monthly over the next twelve months. As the speed of deliveries ramps up in the coming months, more buzz could be created around the Lucid brand... which could also power shares higher!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LCID either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Aye Fin]

I have seen the car at a showroom near where I live. Yes it looks slick, but nothing Tesla can't design. Not sure a startup without the Infrastructure and unknown financial performance could be a better value than, companies like Ford Motor, Toyota, etc

[Phil Dumfee]

Looks better than a Tesla. But Mercedes will win.

[lateralgs]

@Phil Dumfee

There will be a number of winners.

[cross]

I've started selling puts-to-open in LCID at a 20 strike price; 2 at a time for a goal of either owning 1,000 LCID @ 20 or collecting the premium. Pros and Cons with this strategy..
Pros: great premiums underlying strong volatility. A chance to own a company with great promise at a price substantially cheaper than currently trading.
Cons: If LCID were to really take off I would be holding a bag of pennies gained waving goodbye to the money train!! Also, if you are 'put' into the stock of a company that ultimately fails you are left holding a different bag.
Both scenarios are strongly possible with Lucid.

[lateralgs]

@cross

I have been writing both covered calls and cash-covered puts on LCID due to the great volatility. In June, I was able to sell 12/17/21 $40 calls for mid-$2s/sh. I have little doubt those will never reach strike, and even if they did and I don’t roll them, and I allowed them to execute, I’d be taking a very substantial gain on the sale.

I currently have some $17.5/sh puts I sold, set to expire next Friday. Sold those for $1.30/sh at the end of August. I already bought back a number of other $19 and $20 puts at a tiny fraction of the premium received, just to lock in the gains and avoid any surprises.

The volatility has been great for writing contracts and generating cash flow in both directions. I have found the same to be true for PLTR and QS. Generally, these “battleground stocks” can be great for options trading. The more controversy, and the more entrenched both sides are in their positions, the better.

My personal opinion on Lucid Motors is that they have a good chance at long-term success, although the current valuation seems quite ahead of itself.

[lateralgs]

Some fun from Production Preview Week at AMP-1:

www.lucidmotors.com/...

[rando_on_the_internet]

Surprising to see Lucid dropping today, given a pair of positive catalysts. One, the Mercedes EQS official range numbers are out, and at 350 miles they are far short of the Lucid. Two, the news from Tesla is going to send lot of resumes Lucid's way!

[SA-NJ52]

@The Asian Investor

You are confusing buying a car with buying an Iphone. When the Iphone stops working, you through it away and buy another one.

You don't do that with a car. And don't tell me that EVs don't need any servicing.

Other car companies with a dealer infrastructure will produce budget to luxury cars that can be properly serviced.

I own GM, F and VWAGY. I would not waste my money on Lucid and Lordstown or any other startup car company as they do not stand a chance of success.

Now if you want to buy one now and keep it until 2080 when it will be a collector's item, knock yourself out.

@gandc

[The Asian Investor]

@gandc I don't think I am confusing anything and I believe EV startups, some of them, have a good chance of knocking the ball out of the park.

[SA-NJ52]

@The Asian Investor

That was not much of an answer.

Buying a startup with no support infrastructure hardly constitutes a sound investment.

@gandc

[The Asian Investor]

@gandc A differentiated, high margin EV company in an increasingly crowded market has the best chance to grow profitably for a long time. However, I also put some money in Ford because of the firm's low valuation and EV transition.

[smischman]

I'm expecting a $100B market cap by end of next year.

[The Asian Investor]

@smischman This is 2.5x current market cap. I believe this is not unreasonable!

[Ronaldo123]

I can see $lcid going to $30-$35 price range by end of this year. Enjoy the ride folks. Cheers.

[The Asian Investor]

@Ronaldo123 It is the best EV stock I know of. I also own NIO and Li, but I really like the high margin luxury segment. The market opportunity is also great.

[RWilliam]

Play toy for the rich buy a Porsche! Imho. Invest in GM or VW. Long GM.

[The Asian Investor]

@RWilliam Don't forget Ford :)

[SA-NJ52]

@Shomedamony

Biden announced that cars must be built in a union shop to get the ZEV credit, but I can find any indication that this is law now.

www.greencarreports.com/...

The Author may not know that 100 years ago there were dozens of car companies. Now there are very few. GM was created through an amalgamation of numerous companies.

I hold GM and F. I just got filled on VWAGY today. I missed the run up on TSLA and now it is too expensive.

I am sticking with the tried and true companies. Buying upstarts like Lucid may sound good but the issue remains how these vehicles will be serviced and supported in the long term.

Yes I have heard the nonsense that EVs have less parts that ICE vehicles. But the reality is that batteries last perhaps 10 years. I put my 1948 Chevy on the road several years ago. It needed a new block and while I could not find the 48 block, I got the 52 block. I doubt that we will see the same ability to buy parts in 2080 for an EV built today.

EVs still have steering, brakes, windshields, electronics and other components that will fail.

They will need servicing and seniors like me understand this. The new generation think that you can buy a car from a vending machine and there will be no problems....youth is wasted on the young.

@gandc

[RWilliam]

@gandc “Yes I have heard the nonsense that EVs have less parts that ICE vehicles”
Less parts in the drivetrain. Less wear on brakes with regeneration braking. Expensive battery packs, so when it dies your probably done unless it’s an expensive toy.

[MonkeyDo]

@gandc I feel if a person can afford the $170k pricetag on one of these, not getting a $7500 credit isn't going to matter to that customer base...

[The Asian Investor]

@gandc When you look at it globally, there are quite a few. The EV market is getting crowded, anything that helps drive differentiation is great.

[Rex Rode]

Pump then dump, buy, repeat....Let's keep it real, this company is massively overvalued but nevertheless a good momentum trading stock.

[The Asian Investor]

@Rex Rode Why am I pumping and dumping? Especially the last part, I don't get. Do you have insight in my portfolio? ;-)

[Rex Rode]

@The Asian Investor, talking about my own!!!! I could care less about yours.

[The Asian Investor]

@Rex Rode And yet you commented...

[Shomedamony]

Is Lucid being produced in a union shop? I may be wrong but I have heard that in order to get that $7,500 tax credit, the EV must be produced in a union shop.
Are Lucid employes unionized?

[LongTimeReader]

I suspect only a few potential buyers of a $150,000 luxury car will balk at not receiving the government $7500 tax credit.

[Long Dividend]

@Shomedamony There is no Current legislation or rule that say it must be made in a union shop for the EV to get the Federal Tax credit. Tesla got it and they are not union so Lucid will also get it regardless.

The new legislation Biden is working on is taking that into consideration which is stupid but he's got to appease his supporters.
It's stupid to give more EV tax credits when the momentum is moving in that direction. Don't give higher EV credit, maybe just the same but to a higher limit so GM and Tesla can continue to get more. Max out at 500K instead of the 200K it is now. Or try a smaller EV credit so more ppl can make use of it. Not open to past EV tax credits takers.
Give EV charging stations a tax credit so ppl will not have to cry about range anxiety.

[The Asian Investor]

@Shomedamony I don't know if they have a union, maybe someone else has some information on this here... but I don't believe, given a price way above $130,000, that buyers care too much about the tax credit.

[lockwoodj]

One other (positive) thing to add to my comment below. Don't listen to the have-not's sarcasm that "they will never sell cars for $150,000".

Lucid will sell every car they can make. Period.

[The Asian Investor]

@lockwoodj Demand looks strong and might even accelerate as first cars are delivered

[lockwoodj]

I have owned shares in this company since the early CCIV days. 5000 shares has been the maximum but now I'm down to my "core holding" of 1000 shares. I have traded it very aggressively and successfully.

Lucid is a good electric car company and has what seems to be an amazing car. But I don't think it is the right call to pile in here at $24. Competition is intensifying and Rivian is releasing it's IPO soon. Tesla is extremely overpriced. The market looks shaky.

So fine, if Tesla goes to $1000 a share, and Rivian holds it's 80 billion market cap upon IPO, AND the market doesn't crap out, we can get to $30 or $35 a share on Lucid. However, this is not what I think is going to transpire.

I think we roll over market-wise, Tesla gets pounded down, and Rivian sells off a bit after it's IPO. So keep your powder dry for another opportunity in the teens on Lucid. Remember, Lucid was in the seventeens just five weeks ago. It's been known for quite some time that the Lucid Air would have a 500 mile range and would be coming into production release in late 2021 so none of that's a revelation.

[The Real Cavalier]

@lockwoodj I like your attitude. Sane and thoughtful. Lucid's sedan is a great product and as the writer said (nice article by the way) he's projecting $4 billion in revenue in 2025. Give it 10x forward in 2024 and you get a $25 share price. Sounds reasonable. I have a lmit order in for 2,500 shares at $18.

[The Asian Investor]

@lockwoodj I believe Tesla may want to look very carefully at Lucid... it is the firm's biggest threat!

[BULRUN100]

A BUY maybe when they sell their 50K over priced car in 2035! 🤣

[The Asian Investor]

@BULRUN100 Can you be more specific?

[MoparManiac]

I want to get long on this stock, but I keep thinking it is better to wait until the first few cars are delivered, and see if there is any negative reviews from the owners even if I miss some of the potential growth. I like what I see, but the EV market is starting to get crowded.

[The Asian Investor]

@MoparManiac I have given you some resources in the article about the perception of the Lucid Air. Initial reviews are absolutely glowing.

[CzechPick]

@MoparManiac That's exactly the same thing I thought with Tesla in 2014. It kept climbing and I never got in... Not making that mistake again. As long as the product is solid, the buyers will be there.

[MoparManiac]

@CzechPick You have a point, and I am not discounting potentially missing the train. I am looking at LEAP options on Lucid going forward.

[TheeSoluution]

LCID ground floor here, I think this is a $50+ stock the beginning of 2022 imo

[The Asian Investor]

@TheeSoluution The valuation has significant upside. It is a serious Tesla rival and I am using the drops to buy more.

[Rex Rode]

@TheeSoluution actually ground floor (for now) was a month ago at $16....What your suggesting is 50% higher than I paid 5 weeks ago. I happily sold at $28 last week.