Lucid Motors (LCID) has more room to run despite almost doubling in price over the past month, according to a Wall Street firm. But Lucid stock dropped sharply as Rivian rallied in its IPO trading debut.
In a note Wednesday, Bank of America analyst John Murphy noted that Tesla (TSLA) rose 30% over the past month. Its newest challenger, white-hot Lucid, leapt 90%.
He believes both Tesla and Lucid “very likely” have the ability to raise low-cost capital to fund growth. And that could drive valuations higher.
“Building capacity in the automotive industry is expensive and often generates low returns,” Murphy said. “However, as has proven the case for TSLA over the past decade plus, the higher the upward spiral of stocks for the EV OEMs, the cheaper capital becomes to fund growth,” he said. And that, he added, is then rewarded by investors with a higher stock price.
In his analysis, Murphy found a 10% dilutive equity raise for Lucid could fund three-plus incremental plants and 750,000-plus incremental units of capacity, making it “a relatively large global luxury automaker.”
And for Tesla, a 10% dilutive equity raise could fund 40-plus incremental plants and 10 million-plus units of capacity, making it “effectively the largest global automaker.”
The analyst rates Lucid stock a buy and doubled his price objective (PO) to 60. He rates Tesla stock at neutral, hiking his PO to 1,200 from 1,000.
Lucid debuted in July after a reverse merger. It will make its first report as a publicly traded company late Monday.
Milestone For LCID Stock, Rivian
In the past month, Lucid stock emerged as the hottest EV stock. The EV startup outstripped Tesla after starting deliveries of the Air luxury sedan, its first electric vehicle. Earlier in September, the Lucid Air Dream edition was confirmed as the longest-range electric car. It delivers 520 miles on a single charge.
Deliveries mark a milestone for a startup. Many EV startups fail to live up to early hype.
Amazon (AMZN)-backed Rivian has also begun initial deliveries. Its first EV, the R1T electric truck, delivers 314 miles on a charge. Rivian Automotive rallied 29% in Wednesday’s debut after pricing an upsized IPO at 78 a share, above an already-raised expected range.
Longer electric-driving range is a key to the adoption of electric cars.
As a result, “we do not believe the capital markets are as supportive in funding accelerated growth until that hurdle is cleared,” Murphy said.
Lucid Stock, EV Stocks
Shares of Lucid Motors dropped 9% to 40.75 on the stock market today, after setting an eight-month high Tuesday. Lucid stock is far extended from a 28.49 buy point off a cup-with-handle base, according to MarketSmith chart analysis. That means shares are not in buy range.
Tesla stock rose 4.3% Wednesday, snapping a three-session slide. That decline came after CEO Elon Musk proposed selling 10% of his Tesla stake. Some 58% of Twitter poll respondents backed the idea.
Fisker, whose first EV, the Ocean SUV, is poised to go into production in November 2022, slumped 5.2% to 18.89.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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