Lucid Motors: A New Investment Opportunity Has Just Arrived
Dec. 10, 2021 5:40 PM ETLucid Group, Inc. (LCID)TSLA29 Comments14 Likes
Summary
Lucid Motors is set to make big waves in the EV market.
Three compelling reasons why Lucid Motors will fare well with electric-vehicle buyers and investors.
Annual production and sales of around 100,000 electric-vehicles translate into at least $12 billion in revenue potential.
The stock price of EV company Lucid Motors (NASDAQ:LCID) has fallen in recent weeks, which I attribute to general profit-taking rather than anything else. Reservations for the Lucid Air, Lucid Motors' first attempt at producing an electric vehicle, are increasing. Lucid Group has big ambitions in the electric-vehicle market, and it has everything it needs to follow in the footsteps of Tesla (NASDAQ:TSLA), the electric-vehicle pioneer.
3 Reasons Why I'm Doubling Down On Lucid Motors
About three weeks ago, I wrote about my significant investment in Lucid Motors, an up-and-coming Arizona-based EV company with incredible potential in the electric-vehicle market. I invested roughly half of my net worth in Lucid Motors and increased my stake as the stock price shakes out impatient investors. The reason I'm so bullish on Lucid Motors is due to three factors, which I will discuss further below:
1.Customer deliveries already have started, and reservations are on the rise.
The Lucid Air range rating of 520 miles is unrivaled in the industry. No other competitor comes close.
2.The production of Lucid Motors' Air sedan is just getting started. Lucid Motors is expected to reveal details about new models in a relatively short period of time.
3.To the first point, customer deliveries. There are many EV companies that showcase their prototypes and pre-production models, but only a few can show a finished product that is selling. This is where Lucid Motors distinguishes itself in an increasingly crowded field. In October, the electric-vehicle company began making customer deliveries to reservation holders, and reservations are increasing.
Lucid Motors announced that it has received approximately 17K reservations for the Lucid Air luxury sedan, up from approximately 13K reservations in the previous reservation status. Lucid Motors will scale capacity to around 34K electric-vehicles in the first phase of the manufacturing build-up in Arizona, with a tripling of manufacturing capacity expected in the years that follow. So, in essence, Lucid Motors is on track to exhaust 50% of its production capacity through reservations alone. This is a significant accomplishment.
Source: Lucid Motors Company
To the second point, let's talk about the value proposition. In September, the Lucid Air Dream Edition sedan received the highest EV category range rating from the EPA, 520 miles, beating the nearest competitor by a solid 100 miles. No other EV product on the market comes close to Lucid Motors, which, let's face it, is a pretty good selling point for customers looking to contribute to the EV revolution by purchasing an electric-vehicle with their hard-earned money. As a result, the Lucid Air sedan and its various special editions should prove to be best-selling models, resulting in a significant increase in sales once Lucid Motors reaches mass production capacity.
The third point is the introduction of new electric-vehicles. Lucid Motors is currently on track to produce and sell only one primary product: The Lucid Air sedan. But, behind the scenes, the electric-vehicle manufacturer is hard at work on its second project, which will see the introduction of the Gravity luxury SUV. The SUV from Lucid Motors is still in the design phase, and few details have been revealed so far, other than the fact that the new electric-vehicle will be available in 2023.
How Many Vehicles Will Lucid Motors Be Able To Sell By 2025?
If the launch of Lucid Motors' Gravity Project goes as planned, I believe Lucid Motors can sell at least 100,000 vehicles per year by 2025. When estimating Lucid Motors' sales potential, there are two major variables to consider: 1 - the number of electric-vehicles that can be produced realistically given production constraints; and 2 - the average price of electric-vehicles sold. We know that Lucid Motors' annual production capacity for the Lucid Air sedan and the Lucid Gravity SUV will be around 90,000 units, a figure that may rise significantly as the EV company expands its AMP-1 manufacturing plant.
In terms of sales price, I previously calculated Lucid Motors' total revenue potential based on a $100K average sales price, but I now believe upgrade options will drive a significantly higher average sales price. If we assume that 40% of sales will come from the base model (sale price: $77K), 30% from the Air Grand Touring (sale price: $139K), and 30% from the Air Dream Edition (sale price: $169K), then the average price for an electric-vehicle sold is closer to $123K. Selling 100,000 electric-vehicles per year by 2025 equates to a $12.3 billion revenue opportunity, and Lucid Motors' expansion plans into Canada and China may make these estimates conservative.
Valuation
Lucid Motors trades at a sales multiple of six based on $12.3 billion in expected sales (2025e). Estimates this far in the future have a high margin of error, but I believe Lucid Motors is worth the risk despite its high market value. Lucid Motors' valuation is not low, and the stock remains highly volatile, so this is not a stock that everyone should buy. However, such a high multiple can be justified given the EV revolution's accelerating pace and shifting attitudes toward electric-vehicles.
Lucid Motors' Most Vulnerable Point Will Be Delivery Guidance
If Lucid Motors' delivery guidance is thrown off for any reason and the electric-vehicle company has to delay production, delivery estimates will be pushed out into the future. This could have an impact on how investors value Lucid Motors' EV potential. Again, there's no guarantee that my estimates for electric-vehicle sales or average sales prices are correct, so Lucid Motors may fall short of meeting high delivery expectations.
Lucid Motors' Stock Drop
In the last few days, Lucid stock has dropped for two reasons:
The EV company was served with a subpoena by the U.S. Securities and Exchange Commission and is being investigated for "certain projections and statements" it made when it merged its operations with Churchill Capital Corp IV.
Lucid Motors is issuing a convertible senior note with a $1.75 billion face value. These notes bear 1.25% interest and are due in 2026. The convertible senior notes have a conversion price of about $54.78 per share.
In contrast to the market, I see the fund raise as a positive for Lucid Motors because the additional capital will be used to improve liquidity and finance the EV company's production growth. The SEC investigation is more of a short-term issue that should not have an impact on Lucid Motors' production and delivery outlook.
My Conclusion
Lucid Motors has a high market value and a high sales multiple, but it has the best chance of any available EV manufacturer to grow into this valuation over time. Lucid Motors' valuation is high because EV investors have high expectations for the company, but if the company can stay out of trouble and meet its guidance, Lucid Motors could be the hottest thing since Tesla.
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