After reaching highs in 2021, several EV stocks are trailing the broader market due to slowing consumer spending and tepid demand. However, the pullback provides investors a chance to buy the dip and gain exposure to a rapidly expanding addressable market, given the worldwide transition towards EVs. One beaten-down EV stock is Lucid Group (NASDAQ:LCID), trading 95% below its high. I’m bullish on LCID due to its expanding manufacturing capabilities, stellar growth estimates, and widening vehicle portfolio.
An Overview of Lucid Group
Lucid is a technology and automotive company operating in the luxury electric vehicle segment. Its first vehicle, called the Lucid Air, is the longest-range, fastest-charging car on the market today. The Lucid Air is a battery-powered luxury sedan with an estimated range of 516 miles on a single charge.
Lucid Group sells vehicles to consumers through a retail sales network as well as online. It ended 2022 with 31 studios and service centers in North America, three in Europe, and another in the Middle East.
It owns and operates a vehicle service network consisting of service centers in major metropolitan areas and a fleet of mobile service vehicles. In addition to 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 began vehicle deliveries in late 2021 and expects to launch additional vehicles in the next few years. It has already commenced the design and engineering work for Lucid Gravity, a luxury sports utility vehicle that should be launched this year. It now plans to expand its manufacturing advancements to develop higher-volume vehicle segments.
The Lucid Air is manufactured at the company’s greenfield electric vehicle manufacturing facility in Casa Grande, Arizona. Once the manufacturing facility is fully built this year, it will have an annual output capacity of 90,000 vehicles, up from a capacity of 34,000 in 2022.
Lucid is also building an EV manufacturing facility in Saudi Arabia, where it expects to ship 155,000 units each year on competition. In fact, Saudi Arabia’s public investment fund has invested $5.4 billion in Lucid since 2018 while agreeing to purchase 100,000 vehicles over a 10-year period.
Lucid’s expansion should help it achieve operational efficiencies. Further, its focus on vertical integration should shore up its profit margins over time.
How Did Lucid Group Perform in 2023?
Lucid Motors produced 8,428 vehicles in 2023 and delivered 6,001 vehicles. However, it was much lower than the company’s initial production estimates of 12,000 vehicles at the midpoint of its guidance.
Lucid Group manufactured 1,550 vehicles and delivered 1,457 vehicles in Q3 2023, raking in $137.8 million in sales. Comparatively, its capital expenditures totaled $192.5 million in the September quarter.
In the last three quarters, Lucid’s net losses totaled over $2 billion due to its high cash burn rates. To lower operating costs, the company was forced to slash its workforce by 18% and recently announced the resignation of Sherry House, Lucid’s CFO.
Lucid Group Stock Will Remain Volatile
The automobile manufacturing industry is extremely capital-intensive. Further, Lucid Motors will have to expand its manufacturing capabilities multifold to benefit from economies of scale and deliver consistent profit margins. For instance, Tesla (NASDAQ:TSLA) reported its first quarter of positive operating income in Q3 2018 where it ended the year with 245,200 vehicle deliveries.
Comparatively, Lucid Motors ended 2023 with less than 9,000 vehicle deliveries. It suggests that the company will have to allocate significant resources before it churns out consistent profits.
Further, while Tesla enjoyed a first-mover advantage, Lucid Group will have to wrestle with competition from new and legacy EV manufacturers such as NIO (NYSE:NIO), Ford (NYSE:F), and General Motors (NYSE:GM).
Also, while Lucid ended Q3 with $5.5 billion in total liquidity, it will have to raise capital multiple times in the upcoming decade. If it raises equity, it will result in shareholder dilution, while debt will weaken the balance sheet.
Given these factors, investors should be ready for a bumpy ride with Lucid stock in 2024 and beyond.
What is the Target Price for LCID Stock?
Out of the nine analysts covering LCID stock, none recommend a Buy, eight recommend a Hold, and one recommends a Sell, giving it a Hold consensus rating. The average LCID stock price target is $5.09, 51% above the current price.
The Final Takeaway
It’s evident that Lucid Motors is a high-risk, high-reward investment. The EV manufacturer will have to raise production and delivery numbers, improve profit margins, and navigate an uncertain macro environment to regain investor confidence.
Still, it’s trading at a significant discount to consensus estimates and should benefit from multiple secular tailwinds in the next two decades, making it worth consideration.