There are few potential investments as intriguing as electric vehicle (EV) start-ups as the world transitions away from gasoline-powered vehicles. These start-ups have the potential to ride the wave of surging sales over the next decade, even if it's progressing more slowly in the U.S. than originally anticipated.
But Lucid Group(NASDAQ: LCID), as many vehicle start-ups have learned over the years, found that developing, manufacturing, and delivering vehicles is highly challenging. There's good news for investors, however, as deliveries are gaining momentum and the potential market for its upcoming Gravity SUV is larger than some think.
How it started
There was a consistent trend for Lucid investors in recent years: disappointment. While Lucid arguably produces one of the best, most luxurious, EV sedans, the sales left much to be desired. The start-up automaker coasted toward the end of 2023 only delivering 1,734 vehicles in the fourth quarter, 10% lower than the prior year.
For all of 2023 Lucid delivered only 6,001 of the 8,428 vehicles it produced, which slightly topped 2022 when it delivered 4,369 of the 7,180 vehicles it produced. This was a little disappointing considering Lucid had launched the cheapest version of its Air sedan in October and also cut the price of its all-wheel drive trim. EV start-up rival Rivian Automotive by comparison delivered 50,122 vehicles in 2023.
Gaining momentum
Fortunately, Lucid's more affordable trim and price cuts have driven momentum during the first half of 2024, and the upcoming Gravity SUV has a much larger market that should help the company's deliveries shift into a higher gear.
"We believe that the total addressable market for Gravity is six times that of Lucid Air," Lucid CEO, Peter Rawlinson, said in an interview with Yahoo! Finance's Pras Subramanian. Rawlinson couldn't resist giving a hat tip to the company's technology:
We are considerably ahead of where Tesla is. We've taken that mantle. When I was at Tesla, Tesla was the tech leader. They've become distracted, and we have taken that place.
The Gravity SUV will not only operate in a more popular segment than its Air sedan, but it will also have a starting price under $80,000, which will open the doors for consumers who couldn't or wouldn't purchase the Air sedan that could reach price tags as high as $250,000 with its Sapphire trim.
Lucid is also in the process of completing a plant in Arizona that will produce as many as 90,000 vehicles per year, and if the Air price cuts, and Gravity with its larger market, can soak up that capacity going forward, it'll go a long way toward improving the company's scale and financials.
Investors need to be mindful
History is filled with hundreds and hundreds of failed automaker start-ups. One recent example was rival EV start-up Fisker, which filed for bankruptcy protection after struggling with deliveries. It's fun for investors to hunt for the next Tesla -- that's part of the challenge -- but it's important to remember that Lucid remains highly speculative despite deep-pocketed Saudi backing, and investors should limit any investment to a small portion of their portfolio.
However, those warnings aside, Lucid has topped delivery estimates during the first two quarters of 2024 after largely disappointing in 2023, and if its Gravity SUV attracts a chunk of a much larger addressable market, it could really shift its prospects into higher gear.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
