Electric vehicle stocks have taken investors on a volatile ride since the bear market of 2020. Most EV stocks including Tesla (NASDAQ: TSLA) surged to record highs by the end of 2020 before investors were worried about steep valuations resulting in a sell-off. One electric vehicle stock that is flying under the radar is Lucid Motors, a company valued at a market cap of $32 billion.
LCID stock went public earlier this year via a SPAC (special purpose acquisition company) merger with Churchill Capital Corp. The SPAC deal raised $4.5 billion in equity capital. While Lucid Motors (NASDAQ: LCID) stock has more than doubled year to date it’s also down 66% from all-time highs allowing investors to buy the dip.
A massive opportunity for Lucid Motors
The shift towards clean energy solutions will gather pace in the upcoming decade and electric vehicle manufacturers will be at the forefront of this transition. Governments all over the world will continue to support this nascent but highly disruptive market by investing billions of dollars to create a robust infrastructure as well as by providing subsidies to improve demand.
A report from Allied Market Research has valued the global EV market at $162.34 billion in 2019 and this sector is forecast to touch $802.8 billion by 2027, indicating a compound annual growth rate of 22.6%. We can see why Lucid Motors stock is popular among retail investors.
Lucid Motors designs, engineers, and builds electric vehicles but the company is still pre-revenue. It owns a 500-acre property in Casa Grande, Arizona which offers close proximity to an established transportation system as well as strong support from regional governments.
Lucid Motors is building North America’s first greenfield or purpose-built EV factory at this location. Equipped with advanced production line equipment, the facility will have an initial production capacity to manufacture 10,000 cars each year and more than 300,000 units annually with planned expansion.
What next for Lucid Motors?
Lucid Motors is yet to deliver a single car to a customer but it’s currently developing an EV called Lucid Air. It claims the Lucid Air is the quickest, longest range, fastest charging luxury electric car in the world. Priced at a minimum of $69,900 after tax credits, this EV has a range of over 500 miles on a single charge with a max horsepower of 1,080.
Further, the company disclosed the Lucid Air Dream Edition is fully reserved with reservations surpassing 10,000. It remains on track to start deliveries by the end of 2021 and is poised to generate $900 million in sales based on the number of reservations.
At the end of June 2021, Lucid Motors operated eight retail stores in the United States which will be used as a point of contact for retail and after-sales service. The company’s management plans to open additional retail and service locations in the U.S. and Canada in the near future.
Lucid Motors is also looking to accelerate around $350 million of planned CAPEX investment from future periods into 2021-2023 in order to enhance manufacturing capabilities. This increase in investment will allow Lucid Motors to fasten manufacturing capacity for Lucid Air to capitalize on expected demand as well as implement a dedicated Lucid gravity general assembly line. Lucid Gravity is projected to launch by the second half of 2023.
Why Lucid Motors stock will remain volatile?
Lucid Motors ended the June quarter with a cash balance of just $558 million. As the automobile industry is capital intensive, it will have to raise equity capital multiple times which will dilute shareholder wealth at an alarming rate driving LCID stock lower. It will be several years before the company will post consistent profits.
Lucid Motors will also have to compete with market leaders such as Tesla and legacy manufacturers including Volkswagen and Audi in this space which means it will have to spend significant resources on research and development, making the stock a high-risk high-reward bet right now.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
