Is it time to load up on Lucid Group (LCID) stock? That very much depends on who you ask.
On Monday, Guggenheim analyst Ali Faghri initiated coverage of the electric-car maker, and gave the stock a Neutral (i.e. Hold) rating. This is not to say that Faghri is unimpressed with Lucid — the contrary would be more accurate. (To see Faghri’s track record, click here)
“We have a positive long-term view on EV adoption, driven by tightening global emission regulations, increased commitments by legacy automakers to electrify their portfolios, improving cost of ownership, and performance/safety benefits,” says Faghri.
What’s more, the analyst argues that “Lucid is one of the most credible new EV OEMs” and boasts “best-in-class EV technology and product” — even better than Tesla! In Faghri’s estimation, Lucid boasts advantages in “range, battery efficiency, charging speeds and power/performance” — a big reason the company’s Air EV just won MotorTrend’s “Car of the Year” award in its first year on the market.
As such, Lucid is likely to benefit from long term trends such as Faghri’s prediction that electric vehicles will comprise 14% of all car sales globally by 2025, and more than double in proportion to 36% of all car sales by 2030, resulting in a 30% compound annual sales growth rate for the industry as a whole. And it’s worth pointing out — Faghri says his estimates are actually pretty conservative when placed next to what other auto industry analysts are projecting.
Of particular interest to investors, Faghri lauds Lucid’s “vertical integration” approach to manufacturing, with “key EV components” being manufactured in house. In the analyst’s estimation, this “has contributed to its industry-leading powertrain efficiency and will support higher margins at scale.”
Speaking of scale, Faghri notes that Lucid is taking the same “crawl, walk, run” approach to building its business that served Tesla so well in the past. As Tesla did at first, Lucid is introducing its first EV at a “high price point and low volume” in order to establish its brand identity and build consumer trust. That accomplished, the company will turn its attention to addressing what Faghri says is a “significant” total addressable market, and trying to steal market share from market leader Tesla. Production of the Air sedan will ramp slowly over time, supplemented by the launch of a Gravity SUV in 2023, followed by an expansion into mass market EVs in the post-2025 timeframe.
Longer term, Faghri sees an additional market opportunity in supplying powertrains to other automakers — a potential $9 billion annual market opportunity, in the analyst’s estimation, on top of revenues from selling Lucid’s own cars itself. Ultimately, the analyst sees Lucid going from essentially zero sales today, to $72 billion in annual sales by 2032 — and an 18% EBITDA margin on those sales. In the analyst’s opinion, this bright future works out to a fair value of $38 for Lucid today. This figure aligns evenly with where the stock is currently trading.
The bottom line, Lucid is a great company but its current valuation keeps Faghri on the sidelines.
So, that’s the Guggenheim view, what about the rest of the Street’s take? The analyst community is divided. 1 Hold rating and 1 Sell vs 2 Buys present Lucid with a Hold consensus rating. The average price target is above Faghri’s, and at $42.75, implies upside of ~13%. (See LCID stock analysis)