Lucid Group (NASDAQ:LCID) remains one of my top 3 holdings in my growth stock portfolio due to its impressive Lucid Air vehicle, outstanding management, and long-term growth potential.
The Saudi government agreed to purchase up to 100k Lucid EVs over the next 10 years and now LCID shares are quickly up 8% of this positive news.
I've been long LCID shares ever since the CCIV days and want to provide a quick update on why I'm still holding despite the short-term losses.
LCID stock has taken a beating along with the entire EV industry but things are looking much more positive in the future.
The PIF fund is the largest shareholder of Lucid Group with a massive 61% stake in the company.
Some LCID bears may argue that the Saudi Public Investment Fund announced this news to bolster LCID's falling share price. It doesn't surprise me one bit that LCID's biggest shareholder agreed to purchase a large number of vehicles. That makes sense but there is a silver lining here that needs to be inspected.
EV makers get rewarded by the number of units produced. The more EVs they produce and deliver, the more revenue and potential profits these companies can generate.
The EV is not like a traditional ICE vehicles in any shape or form. These "Smart vehicles" come equipped with software that can be updated over time and improved. Lucid may potentially unleash 100k Lucids into the Middle East and that could serve as free publicity and marketing for the company.
The PIF wants to diversify away from oil profits and this deal deserves plenty of attention. Now, let's take a look at some future EV delivery projections to figure out a fair value of LCID stock in the future.
Lucid revised its production numbers in 2022 due to supply chain issues but the company is aiming for around 12,000 to 14,000 Lucid Air EVs this year.
By 2024, Lucid will have also launched its electric SUV named Project Gravity to compete against rivals such as Rivian (RIVN) and Tesla's Cybertruck.
Lucid projected a 88% CAGR in deliveries over the next 4 years in its July 2021 Investor Presentation so I took that same CAGR and adjusted it based on the company's revised delivery estimates. I used an average $100,000 selling price based on a previous Seeking Alpha article.
Lucid Group EV Delivery & Revenue Projections
|Year||Lucid EV Delivery Estimates||Lucid Group Annual Revenue|
Lucid plans to produce 150,000 EVs annually at its Saudi Arabian production facility once completed plus 350,000 annually at its Arizona facility. That's around 500,000 EVs produced annually, which means Lucid Group could max out revenue at $50 billion annually once production reaches 100% full scale.
Lucid must produce and deliver EVs to generate revenue and profits. The company is far behind its competitors such as Tesla (TSLA), which delivered just under 1 million EVs in 2021.
I appreciate that Lucid took a lot of careful planning before scaling its deliveries but the reality is Lucid will never produce a perfect vehicle. There will always be problems and issues moving forward.
Lucid makes an excellent EV but Tesla does a much better job of delivering the EV. Management must figure out a way to increase production volume with maintaining quality. Lucid plans to build a factory in Saudi Arabia by 2026 but there will be many more EV competitors by that time. Lucid's slow-moving approach could hurt its ability to grow market share during a critical time in the EV revolution.
Another risk factor is rising Lithium prices. Lithium prices have skyrocketed nearly 13x since 2020 due to heavy EV demand.
Lithium is an abundant element and is a crucial part of EV batteries. The problem is that it's an extremely long and slow process to extract it from the earth. If Lithium prices continue to rise then Lucid must raise its already premium prices to maintain margins. Higher prices could translate to slower demand, especially during a rising interest rate environment.
Lucid Motors is the only decent competitor to Tesla and I believe the company can reach a $1 trillion market cap by the end of the decade. If this happens then LCID shares could increase 34x from here and trade at nearly $612 per share.
Holding a sizeable LCID stake may provide a comfortable retirement for long-term investors. The Lucid Air is a fantastic EV and continues to win awards and gain recognition. Things are looking bright for Lucid Group and I rate this stock a strong buy as production and interest increase over time.
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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.