The electric vehicle (EV) stock market has been experiencing turmoil, and in 2024, Lucid Motors (LCID) stock reached an all-time low of $2.54 before a slight recovery. This descent is not exclusive to LCID; a broad sell-off has impacted the entire sector, with even Tesla (TSLA) down 13% year-to-date.
These fluctuations occur as the S&P 500 Index has reached a record high, and the tech-heavy Nasdaq-100 Index also closed at a new peak last week. Is Lucid Motors a growth stock worthy of consideration amidst this downturn? This article will explore that question.
Reasons Behind LCID Stock Performance
The year 2024 has seen a 31% decline in LCID stock, mirroring the trajectory of Rivian (RIVN) which went public in 2021 through an IPO, while Lucid chose a special purpose acquisition company (SPAC) reverse merger.
Several factors are contributing to the downturn in EV and auto stocks. Ongoing concerns regarding EV demand are prevalent, further exacerbated by the image of stranded Tesla cars with drained batteries during a harsh Chicago winter, which has negatively influenced investor sentiment towards EV stocks.
Tesla’s recent price reductions, particularly in China, have also cast a shadow of doubt over the sustainability of startup EV companies such as Lucid and Rivian, which continue to grapple with significant cash burn.
Additionally, the possibility of Donald Trump returning for a second U.S. Presidential term is unsettling the markets. His historically unfavorable stance towards electric cars and green energy, in contrast to the pro-EV measures of Joe Biden’s administration, is impacting investor confidence.
Ebb and Flow of EV Stocks
The present decline in EV stocks starkly contrasts the exuberance witnessed in 2020 and 2021, when EV companies experienced astronomical growth. Lucid Motors’ market cap, which had nearly reached $100 billion, has now dwindled to a mere $6.2 billion, while Rivian’s market cap has subsided below $15 billion.
Both companies possess substantial cash reserves, with Lucid holding cash and short-term investments amounting to $4.9 billion as of September.
Evaluating Lucid Motors as a Growth Stock
Despite encountering macro and company-specific challenges, Lucid Motors appears to offer potential at its current reduced valuations. Here’s why:
- Strong product offering: Unlike numerous other startup EV firms with mediocre or questionable products, Lucid Motors boasts an exceptional offering, as evidenced by MotorTrend presenting the Car of the Year 2022 award to Lucid Air. Additionally, Lucid Air holds the second-highest energy efficiency among existing models, according to the U.S. Department of Energy.
- Tech collaborations: Luxury car manufacturer Aston Martin partnered with Lucid, procuring electric motors and batteries. This collaboration substantiates Lucid Motors’ claim of delivering a top-tier product. The company’s CEO, Peter Rawlinson, reported an upsurge in inbound interest for their technology during the latest earnings call, indicating the potential value of tech-sharing partnerships to diminish automakers’ R&D costs.
- Saudi involvement and backing: Lucid has commenced car assembly in Saudi Arabia, which holds the option to order up to 100,000 vehicles from the company. The oil-rich nation’s sovereign wealth fund is Lucid Motors’ principal stockholder, having invested $3 billion into the company since late 2022. The possibility of Saudi Arabia acquiring Lucid Motors remains plausible given its focus on clean energy and the company’s reduced valuations.
- Upcoming Gravity SUV launch: Later this year, Lucid Motors intends to initiate deliveries of the Gravity SUV, expected to bolster its sales.
Reflecting on Lucid Motors’ Stock Forecast
Wall Street analysts express a pessimistic outlook on LCID, assigning it a consensus rating of “Hold.” Out of the 12 analysts covering the stock, 10 rate it as a “Hold,” while 2 consider it a “Strong Sell.” However, the mean target price of $5.47 represents a 90.6% premium over the current price level.
I believe that Lucid Motors, along with Rivian, could endure as prominent players in the congested and fiercely competitive U.S. EV industry due to its robust product proposition and substantial backing from Saudi Arabia, which has consistently funded the company since its inception.
Previously, I was skeptical about Lucid Motors immediately after its overhyped merger, which inflated its valuation. Yet, with the company’s decreased valuations now presenting a more feasible investment opportunity, I find it worth considering at these levels.
