Electric vehicles (EVs) have been the rage in 2021. They have come out with multiple prototypes, new technologies, and massive valuations. Some of them, like luxury EV maker Lucid Group (LCID), have even gone public via the SPAC (special-purpose acquisition company) route, thanks to a merger with Churchill Capital IV Corp.
It is the largest SPAC deal involving an EV startup. However, it might be a good time to pause and take a hard look at LCID. Its stock has run up over 265% since Churchill Capital infused $4.4 billion in total funding to LCID and it could be overvalued. As a result, I am bearish on the stock. (See Analysts’ Top Stocks on TipRanks)
How LCID Stock Ran Up So Fast
The Lucid-Churchill deal valued LCID at $24 billion in February 2021. At its last traded price of $36.55, LCID’s market cap was over $59 billion. Not a bad return in less than nine months!
After the Churchill deal, the stock ran up over $52 but then fell to $24-$25. The reason for this was a delay in the rollout of its Lucid Air sedan, which was supposed to roll out in the spring, but nothing came of it. In fact, the company stopped giving any production updates after February. The stock was in limbo for a few months and even dropped below $20 in August.
Then, on September 16, Lucid made heads turn around the world when it announced that “the Lucid Air Dream Edition Range has received an official EPA [Environmental Protection Agency] rating of 520 miles of range. It is the longest-range electric vehicle ever rated by the EPA – delivering at least 100+ miles of additional range over its closest competitor.” Its closest competitor is Tesla’s (TSLA) Model S which has a range of 412 miles.
Is Lucid Stock Following the Tesla Route?
Lucid stock seems to be emulating Tesla’s stock trajectory. The Elon Musk-run company has been called the original meme stock for the way it has run-up to the moon. On January 1, 2020, Tesla closed at $130.11. Its last traded price was $1,172, a run-up of over 800%.
For 23 months, analysts and market experts have kept reiterating that the stock is overvalued, but Tesla shareholders haven’t listened to them. On November 1, CNBC’s Mad Money host Jim Cramer said, “Tesla is actually a phenomenon we have to talk about because I’ve actually never seen a stock go up endlessly on nothing.” On April 6, 2021, a Roth Capital analyst said that the stock was actually worth only $150. The stock was trading at $677 and has since moved up by over 73%.
Lucid stock is also seeing the same wild swings in its stock price like Tesla. The stock shot up from $27.01 on October 27 to $36.92 on October 28. On the weekend of October 30-31, the first customers who had reserved the Lucid Air Dream Edition vehicles took delivery. A regular company would have seen its stock price go up on the next opening trade. However, Lucid stock fell over 11% on Monday and Tuesday.
Wall Street's Take
Turning to Wall Street, Lucid has a Moderate Buy consensus rating, based on two Buys and one Sell assigned in the past three months. The average Lucid price target of $23.33 implies 44.2% downside potential.
Analyst price targets range from a low of $12.00 per share to a high of $30.00 per share.
What’s the Hiccup?
At the end of September, Lucid announced that the company is on track to produce 20,000 vehicles in 2022 and 50,000 vehicles in 2023. However, the company also acknowledged that this is a capital-intensive business and that the $4.4 billion would see the company through to the end of 2022. Nonetheless, producing 20,000 cars in 2022 will still be a huge jump from the 577 it produced in 2021.
While reviews from those that have driven the Air have been spectacular, the true test will come when it starts hitting the roads at mass production.
Lucid’s ‘Project Gracity’, its electric SUV segment which is planned for release in late 2023, will require another infusion similar to the one Churchill gave. Will Lucid find the money? Well, CEO Peter Rawlinson is not waiting until the end of 2022 to find out. He is constantly on the lookout for more cash. This means the company will go through another round of dilution.
Another spanner in the works could be the shortage of semiconductor chips around the world. What if the 20,000 cars don’t get the chips they need in time? Will this delay production? Does this mean another year of next-to-no revenue?
Clearly, Lucid stock is a phenomenon of its own right now. Will it be able to continue with its upward trend? Or will it come crashing down? The lowest target for the stock is $12, which is significantly lower than current levels.
For 2019, Lucid reported revenues of $4.6 million and negative earnings of $277.4 million. In 2020, the corresponding numbers were $4 million and -$719.4 million. Maybe it makes sense to wait for a couple of quarters before entering this stock.
Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article.
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