LCID Stock: Is Lucid Motors a Buy Right Now?
June 02 2022 - 7:15AM
Finscreener.org
When a bear hugs you, you get
hurt. It doesn’t matter how strong you are, you will find it
difficult to breathe. Electric vehicle maker Lucid
Group (NASDAQ:
LCID) discovered that in
2022. The California-based technology and automotive company
engaged in the designing, engineering, and building of electric
vehicles, EV powertrains, and battery systems, has lost over 52% in
2022. It closed at $20.18 on May 31 after
reaching an all-time high
of $57.75 in November
2021.
Long term EV outlook is solid
Even though the EV industry might
be facing some short-term headwinds due to the Russia-Ukraine war
and related macro-economic conditions, the long-term outlook of
this industry is solid. The rising levels of peopleU+02019s concern
for the environment and the push towards reduction of dependency on
fossil fuels will drive demand for EV vehicles.
Lucid has a hefty cash reserve of
$5.4 billion to take advantage of this secular shift in consumer
demand and is in a perfect position to finance its growth for the
next 12 to 18 months.
The company’s Project Gravity SUV
is due for production in 2024. In its new
Saudi Arabia
factory, Lucid Motors
will be able to produce up to 155,000 units. Further, Lucid Motors
has also agreed to supply up to 100,000 vehicles to the government
of Saudi Arabia through 2030, thereby adding more to its long-term
revenue visibility. Additionally, aggressive
expansion plans
across the European region are also
on the cards.
Lucid Motors will be impacted by adverse macroeconomic
conditions
The EV market is facing several
headwinds right now. These problems don’t look like they are going
to subside anytime soon. There are stagflation worries for 2023,
which could affect demand for premium EVs like Lucid’s luxury sedan
that the company intends to launch later this year.
Lucid Motors has already lowered
its production guidance for the current year from 14,000 vehicles
to 12,000 vehicles. The market estimates that production and
delivery guidance for 2023 might be lower than
expected.
The company
expected to generate
positive free cash flows by 2025 but
it seems the cash flows might remain negative beyond 2025 as well.
Cash flows are one of the biggest determinants of valuation. It’s
not a surprise that the company’s stock has been trading at such a
low level.
What next for LCID stock?
Despite being in its early stages
of growth,
Q1 of 2022
saw the company generate revenue of
$57.5 million along with customer reservations of more than 30,000
a day. This level was achieved despite the slow output of vehicles
during the quarter.
High reservation numbers indicate
the market is optimistic about its products and is looking forward
to buying them. Its cash in hand of $5.4 billion also eases some
fears. The decision to increase the price levels of some of its EV
models might also cast a positive impact on its cash flows in the
coming times.
Analysts have an average price
target of $29.98 on Lucid stock. That’s a potential upside of over
48%. The EV market is an extremely competitive one and Lucid with
its constant focus on innovation is in a perfect position to drive
its way up as a leading player in the market. The international
expansions have further increased the stock’s attractiveness.
Short-term challenges like raw material shortage, chip shortage, or
the danger of a global recession might exist, but the long-term
prospects of the stock remain robust.
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