After hitting highs in 2021, several electric vehicle stocks are lagging the broader market as consumer spending slows and demand is subdued. However, the decline offers investors an opportunity to buy the dip and gain exposure to a fast-growing, addressable market given the global transition to electric vehicles. One beaten-down EV stock is Lucid Group (NASDAQ:LCID) and is 95% below its peak. I am optimistic about LCID due to its growing production capacity, excellent growth projections and expanding 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 Lucid Air, is the longest-range, fastest-charging car currently on the market. 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 distribution network and online. The year ended 2022 with 31 studios and service centers in North America, three in Europe and another in the Middle East.
The Company 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 its internal capabilities, Lucid has an approved roster of trained collision repair shops that serve as repair centers for its mobile offerings.
A focus on expansion
Lucid began delivering vehicles in late 2021 and expects to bring additional vehicles to market in the next few years. Design and engineering work has already begun on Lucid Gravity, a luxury sport-utility vehicle scheduled to launch later this year. The company 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 fully built this year, the production facility will have an annual production capacity of 90,000 vehicles, up from 34,000 in 2022.
Lucid is also building an electric vehicle manufacturing facility in Saudi Arabia and expects to ship 155,000 units per year. In fact, Saudi Arabia's public investment fund has invested $5.4 billion in Lucid since 2018, while also agreeing to purchase 100,000 vehicles over ten years.
Lucid's expansion is expected to help increase operational efficiency. Additionally, its focus on vertical integration should strengthen its profit margins over time.
How has Lucid Group performed in 2023?
Lucid Motors produced 8,428 vehicles and delivered 6,001 vehicles in 2023. However, it was well below the company's original production estimates of 12,000 vehicles at the midpoint of its forecast.
Lucid Group produced 1,550 vehicles and delivered 1,457 vehicles in the third quarter of 2023, representing revenue of $137.8 million. In comparison, capital spending in the September quarter totaled $192.5 million.
Over the last three quarters, Lucid's net losses topped $2 billion due to high cash burn rates. To reduce operating costs, the company had to reduce its workforce by 18% and recently announced the resignation of Lucid CFO Sherry House.
Lucid Group shares remain volatile
The automotive industry is extremely capital intensive. Additionally, Lucid Motors needs to expand its production capacity manifold to benefit from economies of scale and maintain consistent profit margins. For example Tesla (NASDAQ:TSLA) reported its first quarter of positive operating results in the third quarter of 2018 and ended the year with 245,200 vehicle deliveries.
In comparison, Lucid Motors ended 2023 with fewer than 9,000 vehicle deliveries. This suggests that the company needs to allocate significant resources before generating consistent profits.
Additionally, while Tesla enjoyed a first-mover advantage, Lucid Group faces competition from new and old electric vehicle makers like NIO (NYSE:NIO), Ford (NYSE:F) and General Motors (NYSE:GM).
Even though Lucid ended the third quarter with $5.5 billion in total liquidity, it will need to raise capital multiple times over the next decade. If this increases equity, it dilutes shareholders, while debt weakens the balance sheet.
Given these factors, investors should be prepared for a bumpy ride with Lucid stock in 2024 and beyond.
What is the price target for LCID stock?
Of the nine analysts covering LCID stock, none recommend Buy, eight recommend Hold and one recommend Sell, giving the stock a consensus rating of Hold. The average price target for LCID stock is $5.09, 51% above current price.
The last snack
It's obvious that Lucid Motors is a high-risk, high-reward investment. The electric vehicle maker must increase production and delivery numbers, improve profit margins and navigate an uncertain macroeconomic environment to regain investor confidence.
Still, it trades at a significant discount to consensus estimates and is expected to benefit from several long-term tailwinds over the next two decades, making it worth considering.
Disclosure