Lucid Motors (LCID) - Get Lucid Group, Inc. Report is one of the most discussed stocks on the internet, due largely to its position in the trendy electric vehicle (EV) market. With a market cap of nearly $70 billion, Lucid's stretched valuation also draws attention. That's especially the case when the company is compared to more traditional automakers.
Lucid went public through a SPAC deal last July. Since then, LCID has risen 57%. But the stock is still 23% below the all-time high it reached in November 2021.
Despite its name, the future of Lucid stock isn't very clear at all. So let's dig into some data to get a more lucid view of LCID in both the long and the short terms.
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The Long-Term EV Opportunity
Third-party research suggests that the EV market could be worth $1 trillion by 2026. That would represent a compound annual growth rate (CAGR) of more than 23% from today's valuation of $260 billion.
In terms of unit sales, analysts are projecting growth from around 2.5 million in 2020 to about 11 million in 2025. At that level, electric vehicles would account for approximately 32% of total new car sales.
Government regulations and policies are still important catalysts for the EV market. Currently, Asia is the fastest-growing market. But sizable EV incentives exist in the United States, select EU countries, and Australia.
According to a report by Market Research Future, "Tax breaks, non-monetary benefits such as new car registration and carpool lane access, increased vehicle range, active participation of OEMs, provision of charging infrastructure in regular places, and other factors can all contribute to the expansion of EV market trends."
Lucid Motors is trying to take advantage of this growth opportunity. Despite the ongoing computer chip supply shortage that has impacted the EV market, increased demand and solid execution seem to be working in Lucid Motors’ favor so far.
The Risk of an EV Bubble
However, in today's speculative market, investors seem willing to overlook business fundamentals and focus on companies' far-out potential. This might suggest we're running the risk of a bubble.
While nobody would call the EV space a fad, it might be a stretch to say that the sector has also been pushed forward by this speculative wave.
It's hard not to look for similarities between today's EV market and the dot-com bubble of the late 1990s.
“The dot-com bulls were right about what the future would look like. But they were way too optimistic about the timing.”
Lucid Is Priced Like a Tech Stock
LCID is priced like a technology growth stock. That means the market has priced it primarily on its technological potential, rather than the actual units the company produces or sells.
It's not surprising that Lucid has a market cap of nearly $70 billion, given that the company has set a production target of 20,000 units by the end of 2022. In comparison, "traditional" automaker Honda has a market cap of $52 billion and produced 4.4 million cars in 2020.
One of Lucid’s key pillars for growth is its high-quality electric vehicles. Its flagship model, the Lucid Air, won the Motor Trend Car of the Year award, which is considered one of the most prestigious honors in the auto industry.
This underscores the quality of the vehicle and lends credibility to the brand. If Lucid can continue to produce quality vehicles, it should have a successful future. That makes it an appealing long-term play.
On the other hand, Lucid stock might not make a good short-term bet, due to inflationary rates in the U.S.
Inflation reached a 39-year high of 7% in December 2021. As a result, the U.S. central bank has promised to raise interest rates. That could hurt growth stocks, such as Lucid, which tend to use debt to grow.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)