Electric vehicle stocks rocketed to new heights just a few years ago, Lucid Group(NASDAQ: LCID) included, as cheap money fueled new investments in EVs. But when interest rates rose and vehicle costs ballooned, most EV stocks fell back to Earth.
Lucid's share price is down about 80% over the past three years, putting its shares under $5 right now. At that price, is now a good time to buy Lucid? Let's take a look at what's going right with Lucid as well as what its hurdles are to figure out the right investment strategy.
What's going right with Lucid right now
Let's start with the good news. Lucid received a $1.5 billion commitment from the Saudi Arabian Public Investment Fund (PIF) in early August. The PIF has been Lucid's largest financial backer, pouring billions of dollars into the company so far.
This investment helped tamp down fears of Lucid's massive spending (more on that in a moment) as the company tries to ramp up vehicle production. Lucid says the cash investment will keep the company funded through the fourth quarter of 2025.
That's certainly good news for the EV start-up, and it comes as the company gears up for the launch of its Gravity SUV. Until now, Lucid has only produced variations of its Air luxury sedan. But the Gravity will allow Lucid to enter a new vehicle segment and tap into American consumers' obsession with SUVs.
The Gravity will be available later this year, and its starting price is under $80,000. For what it's worth, automakers often cite low starting prices but don't begin selling the cheaper trim levels right away.
Still, Lucid's Gravity could be a winner for the company. Lucid's management believes the total addressable market for Gravity could be six times larger than for its Air sedan.
Lucid still has some big hurdles to overcome
This is all well and good, and I don't fault investors for looking to the company's recent cash investment and its Gravity SUV as reasons to be optimistic. But there are some major hurdles Lucid is facing right now.
For investors who've been following Lucid for a while, one of the company's glaring issues has been its lackluster vehicle production. The company produced just 8,428 vehicles last year and says it'll make about 9,000 vehicles this year.
That's a massive shortfall compared to when the company first went public, and it said it would produce 90,000 vehicles in 2024. It's also far behind fellow EV start-up Rivian Automotive, which produced more than 57,000 last year.
Image source: Lucid Group.
Falling short of production isn't unusual for automotive start-ups, but making 9,000 vehicles annually after manufacturing began in 2021 is far from impressive.
Not only is vehicle production off to a very slow start, but Lucid's sales have also yet to impress. Sales in the first quarter of this year were up just 15.5%, and second-quarter sales rose 33% to just $200 million. Meanwhile, Lucid had a net loss of $1.3 billion in the first half of the year.
Part of the company's increase in sales in the second quarter was also due to price cuts on its Air sedan, by as much as 10%, which likely contributed to a temporary lift in sales. That's an acceptable strategy if you need to move vehicles, but not great when you're a young start-up needing to maximize the amount of money you make from each vehicle.
Should you buy Lucid now?
I like Lucid and root for its success because it makes a great vehicle. But for all the reasons I mentioned, I don't think you should buy Lucid stock right now.
The company still needs to prove it can ramp up its vehicle production and sell far more vehicles than it's selling right now. Until that happens, Lucid will continue to burn through cash. Maybe its new Gravity SUV will help the company, but that's still far from a sure thing. And with its shares trading at a price-to-sales (P/S) ratio of 14.6, Lucid stock is still pricier than Rivian, which has a P/S ratio of just 2.8.
All of this means it may be better for investors to sit on the sidelines to see if Lucid can fix some of its most glaring issues before buying this EV maker's stock.
Should you invest $1,000 in Lucid Group right now?
Before you buy stock in Lucid Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lucid Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $731,449!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
Chris Neiger has positions in Rivian Automotive. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
