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Why Lucid's CEO Thinks He Can Take On Tesla

The electric-vehicle upstart has a huge valuation and almost no actual sales, but that should change soon.

Lucid Motors  (LCID) - Get Lucid Group, Inc. Report exists more as promise than reality. 

The company had a $78 billion market cap as of 2 p.m. Thursday but it has delivered just a handful of vehicles (with more slated to close the year). 

Instead, the Newark, Calif., company closed its third quarter with 13,000 vehicle reservations, which it said in its most recent earnings release represents $1.3 billion.

That number has since increased to more than 17,000, but reservations are not the same as sales (as anyone who has followed the Tesla  (TSLA) - Get Tesla Inc Report Cybertruck saga surely knows. 

What Lucid does have is a very confident chief executive with an impressive background: Peter Rawlinson, who formerly was a Tesla vice president and served as lead engineer for the Model S. 

Rawlinson has not been shy when it comes to touting his company's upcoming product and its ability to become a major player in the EV space.

Lucid, which started at the battery company Ativa, wants to create the best car in the world, according to its CEO. In the company's first earnings call since it went public earlier this year, Rawlinson laid out how he expects to do that. 

He described the company's efforts as "rethinking from the ground up every single aspect of the vehicle. From design, to engineering, to manufacturing."

That's a bold ambition, but Rawlinson could never be accused of lacking confidence. It's fair to say, however, that Lucid has very ambitious goals and that if it delivers on them, the company may actually grow into its valuation.

What Are Lucid Motors' Goals?

Rawlinson wants more people driving electric cars. He believes Lucid's first vehicle, the Lucid Air, will deliver on that.

"The initial results of our efforts is Lucid Air, which carries with it the means to accelerate the adoption of electrification, while redefining luxury in the automotive market," he said. 

"As we continue to bring Lucid Air to market, it's clear that the opportunity we have in front of us is massive because the market opportunity is not just for electric vehicles, it's for vehicles overall."

EVs only have 2.5% penetration in the U.S. and 4% globally, he explained. He says Lucid sales will be driven by not just EVs claiming a larger piece of the market but growth in demand for luxury vehicles. 

Rawlinson expects that segment to grow 5% annually. He says Lucid sits at the intersection of a number of factors that should drive the company forward.

"We believe that the growing customer sentiment for electric vehicles, coupled with the government mandates encouraging their adoption, provides significant support for the EV industry overall and for Lucid's position within it," he said.

Rawlinson cites the company's technology as a driving force behind its eventual success. He does not call out Tesla by name, but he's not subtle about which company he's taking aim at.

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"We believe that our technology is worlds apart from even the current market leaders," he said. "For example, no one expected Lucid to achieve even 400 miles of range. And now we have an [Environmental Protection Agency] certification of 520 miles of range for the Lucid Air Dream Edition R."

He also said that Lucid has created this technology with an eye toward an ability to manufacture it at scale, "which is where true innovation lies."

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The Road Ahead for Lucid

Tesla delivered more than 600,000 vehicles globally in the U.S. through the first three quarters of 2021. Lucid has booked essentially no revenue from selling cars, but it does expect that to change in the fourth quarter.

"You will not see vehicle revenues until Q4, given that customer deliveries began on Oct. 30," Lucid Chief Financial Officer Sherry House said during the earnings call.

The company, she added, has $4.8 billion in cash on hand thanks to the company listing its shares on the Nasdaq through a reverse merger.

"This capital will increase the production capacity and vertical integration at our production facilities in Casa Grande, Ariz., and support the readiness of our global supply chain," she said. "

The challenge is that while $4.8 billion sounds like a lot, Lucid has to build more manufacturing facilities, create a network of service centers, and build out a base of studios (its version of a car dealership). 

Lucid also has to continue to devote large sums to research and development as Rawlinson has literally built the company on the premise of having the best technology.

Tesla spent roughly $1.4 billion on R&D per year in each full year since 2017 with the number nearing $1.5 billion in 2020. 

The EV leader, based in Austin, spends roughly triple on R&D per vehicle compared with traditional automakers, but its brand position enables it to spend exactly zero per vehicle on advertising.

Rawlinson may be a visionary, but the market has priced in an awful lot of things going right for Lucid.

"Investing in a publicly traded company makes little sense when future success and years of growth are already baked into a stock's price," Real Money contributor Brad Ginesin said in a recent piece. 

"This is why buyers of Lucid Motors are taking on enormous risk and are in for a bumpy ride.

"As Wall Street's euphoria for electric vehicles intensified, investors have reached for 'the next Tesla,' making Lucid's share price disconnected from a reasonable valuation."

That does not mean the company won't succeed, but there's a big divide between having the grand vision of being bigger than Tesla and actually making that happen. 

Lucid's CEO has made clear that he plans to build (and spend) aggressively, but that's not a guarantee of success. 

And as Denisen explained, a lot of things going right have already been factored into the company's valuation.