The market has turned detrimental for a lot of high-growth shares in 2022. After enormous run-ups in 2020 and early 2021, traders have offered off speculative expertise investments. That is evident when trying on the value of lots of electrical automobile (EV) shares, lots of that are down 50% or extra this yr. Lucid Group (LCID 4.54%) is amongst these losers, down 49% to this point in 2022 after being probably the most beneficial automakers on the planet after its public debut in 2021.
Drawdowns are a tricky tablet to swallow however can present shopping for alternatives with shares buying and selling at a reduction. Is Lucid Group inventory a purchase? Let’s have a look.
Picture supply: Getty Photographs.
What’s Lucid Group?
Lucid Group is an upscale EV producer that’s attempting to carry a real luxurious electrified automotive to market. Its automobiles value wherever between $100k-$250k per automotive and include a fantastic vary of 500+ miles on a single cost (for comparability, the Tesla Mannequin S has a spread of 396 miles) with solely 20 minutes to cost. In reality, although its vehicles are barely beginning to come off the manufacturing line, the Lucid Air was named the MotorTrend 2022 Automotive of the 12 months, one of many highest honors within the vehicle trade.
With a goal marketplace for the prosperous 1% of the world, Lucid Group isn’t trying to turn into one of many largest carmakers on the planet like its competitor Tesla. As a substitute, it’s centered on serving the pricier finish of the trade. As of the top of 2021, the corporate had 25k reservations for its automobiles, which equates to roughly $2.4 billion in future income.
The corporate is barely a start-up
Whereas Lucid Group has gotten lots of buzz, traders ought to know that the corporate remains to be in its very early phases. In 2021, it solely delivered 125 automobiles to prospects as its manufacturing simply turned totally operational. In 2022, it expects to provide 12k-14k automobiles, which will probably be an enormous step up in scale and fulfill nearly half of its 25k in reservations. After it burns by way of its reservation ebook, it must hope luxurious automotive consumers embrace the electrification of the trade so it will probably preserve demand for its merchandise.
After elevating cash by way of a merger with a particular goal acquisition firm (SPAC) and issuing $2 billion in new inexperienced convertible bonds, Lucid Group has $6.3 billion in money on its stability sheet. That ought to give it a runway of some years to scale its manufacturing to break-even profitability. However as we have seen with Tesla during the last decade, it takes lots of scale and lots of capital funding to carry an automotive enterprise to generate constant earnings. Lucid Group ought to have a better time than most due to its give attention to luxurious vehicles, however will probably be a protracted course of nonetheless.
Keep away from speculative investments at excessive costs
The Lucid story is thrilling, and also you may suppose it’s time to purchase the dip with the inventory down round 50% simply this yr. However make no mistake, that is nonetheless a extremely speculative funding at a nosebleed value. In 2021, Lucid Group had an working lack of $1.5 billion on income of simply $27 million. If it will probably hit its manufacturing targets for 2022 and the vast majority of these vehicles get delivered, income will soar to barely over $1 billion this yr. At a market cap of $32 billion, that provides the inventory a ahead price-to-sales ratio (P/S) of 32. A conventional automotive producer like Toyota has a P/S of round 1, which means that Lucid Group is valued at 32 occasions the typical automaker proper now. Traders are pricing in lots of development, that is for certain. There are additionally enormous working losses that must get mounted inside just a few years.
Lucid Group might be a viable enterprise sometime, and it might even find yourself being one of many high EV manufacturers on the planet. However that doesn’t imply you should purchase the inventory.
