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Lucid Motors: Overly Troubled EV Stock?

Stock MarketsSep 05, 2021 12:01PM ET
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© Reuters. Lucid Motors: Overly Troubled EV Stock?

Lucid (LCID) is one of the leading electric vehicle manufacturers worldwide, with a market capitalization of almost $37 billion. This EV manufacturer is only behind Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) in terms of market cap. 

Lucid Motor stocks have been one of the most interesting picks this year for investors and analysts alike. Lucid stock, which was then trading as Churchill Capital, jumped from $10 to $60 within a span of few weeks. However, as the terms of Churchill’s SPAC merger came to light, company shares dramatically lost over half of their value overnight. 

Although Lucid and Churchill completed the planned merger, the stock failed to rebound to its previous levels. Instead, shares have been trading in the range of $20 and $30.

Lucid investors expecting the stock to return back to its $60 level might have to wait for some time.

While shares of this EV maker have gone up by 103% year-to-date, the stock suffered a 13% decline in the past month. Indeed, Lucid stock is going through a rough patch. I am neutral on this stock. (See Lucid Group stock charts on TipRanks)

Let’s find out in detail. 

PIPE Lock-up Provision made Investors Jittery

According to the SPAC merger announcement of Lucid, numerous lock-up provisions have been formulated. The inclusion of such lock-up provisions has made it difficult to assess and clearly understand details of the lock-in period. 

Investors would not be allowed to sell off shares during the said period. PIPE (private investment in public equity) investors can sell off the shares on September 1, when the lock-in period expires. However, other investors are barred from selling shares until 6 to 18 months after they receive the shares.  

These complications haven’t helped the stock at all.

Infrastructure Bill Won’t Benefit Lucid

The United States Senate passed the much-discussed infrastructure bill last month. It is expected to provide a boost to the electric vehicle sector. While this bill might benefit the big EV makers, it might actually hurt the prospects of upstarts like Lucid.

That's because the government currently offers a $7,500 tax credit for the first 200,000 units that a manufacturer produces. The tax credit is not provided after the 200,000 mark. Until now, only large manufacturers like Tesla and General Motors (NYSE:GM) have reached that mark. Analysts thought that new EV upstarts would have a more favorable tax credit system. However, things didn’t end up as expected.

The Senate, on the contrary, removed the 200,000 mark. While this might be beneficial for the bigger manufacturers, it won’t necessarily help newer upstarts like Lucid. This is because the bill allows producers like Tesla and GM to avail tax credits on an unlimited number of EVs. 

Moreover, this bill says EVs with a base price under $40,000 will be eligible to receive a tax credit. Most EV models from Lucid cost way above the $40,000 mark. Also, only customers with an annual income below $100,000 would be eligible for this tax credit. 

Thus, such provisions will only reduce the prospects of Lucid. 

A Difficult Road Ahead for Lucid

Lucid plans to sell 20,000 units in 2022, followed by 49,000 units in 2023. It expects to generate revenue of $2.2 billion in 2022. By 2030, the company intends to sell as many as 500,000 EVs. 

However, the EV manufacturer is already facing various risks that can hamper its future plans. There has been a considerable delay in production with numerous technical issues after launch. 

On top of that, there has been a sudden shortage of semiconductors worldwide, which is hampering EV production. Investors might not need to worry about delays impacting the future of the company. However, continued delays and missed production targets can negatively affect the growth prospect of the company.

Bottom Line

Although Lucid stock looks to be in bad shape right now, it can deliver a decent market performance in the future. The company targets to reach $22.7 billion in sales by 2026. Moreover, it comes with a far-sighted management team and an interesting lineup of EVs. Investors willing to take a little risk could benefit greatly from this stock. 

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Lucid Motors: Overly Troubled EV Stock?
 

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Comments (2)
Hubert Makuch
Hubert Makuch Sep 05, 2021 5:34PM ET
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Its a dangerous and foolish thing to go against ev stocks, especially when they are being referred to as “the second tesla” or “tesla killer”. Everyone is looking for the next ev stock to hop on because they want to find the next Tesla type of stock. The only resonable move is to be long on Lucid as they seem to be a VERY promising company.
jason xx
jason xx Sep 05, 2021 12:24PM ET
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Except they haven't actually manufactured a car yet. I should have held off going long on this pile of what you see in the toilet after a gorilla dump.
 
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