Lucid Stock Is Nothing Like TSLA Stock as the Long-Term Case Is Spotty

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Ahead of initial productions of its luxury electric vehicle production, investors scooped up Lucid Group (NASDAQ:LCID) stock.

Source: Around the World Photos / Shutterstock.com

The price doubled, squeezing short-sellers. The bulls treat Lucid as if it is the next Tesla (NASDAQ:TSLA), which enjoys a market capitalization in the trillion-dollar range.

Lucid is in the very early innings of realizing revenue growth. Investors should have no doubt that revenue will grow at impressive rates. But after fulfilling reservations for its premium EV, will selling mainstream vehicles to the mass market pay off? Is the business model sustainable?

Markets do not care about rising losses. It is an acceptable aspect of an emerging firm.

Positive Reviews Lifts LCID Stock

Motortrend wrote that Lucid’s 2022 Air Grand Touring is an “impressive rethink of the luxury sedan.” When Tesla did not change the exterior design of its top-end Model S or any of the other EVs, Lucid’s design is refreshing. Tesla only updated its software regularly. Its Plaid has impressive power and acceleration.

Unfortunately for Tesla, Lucid’s specifications and design may shake up Tesla fans.

Lucid Air has 1,111 horsepower, incredible battery technology that gives Air up to 520 miles in range, and it is quick, too. The Air will reach 0 to 60 miles per hour in only 3 seconds. Sure, the Tesla Model S Plaid gets there in 2.07 seconds, and Mercedes EQS and Audi RS E-Tron GT have comparable speeds.

For consumers, acceleration is not an afterthought. Lucid’s EV has more luxury on the inside than the competition. For example, the vehicle will seat five adults with ease. Lucid shrunk its EV motors, increasing cargo space.

A Pricey EV

Lucid’s Air Grand Touring starts at $139,000. It will not target the mainstream market with Air Pure until late 2022 at a $77,400 sticker price.

At a high price, Lucid is nowhere near a competitive threat for Tesla EVs. Tesla has such strong a brand that it does not even need to advertise.

Lucid may need light advertising efforts to the wealthy to drive sales. Once it fulfills its backlog from pre-orders, it needs to sustain selling momentum next year and beyond.

Investors cannot predict Lucid’s future revenue beyond fulfilling sales to reservation holders. Since the market is a forward-pricing machine, Lucid must demonstrate continued selling momentum.

Nio (NYSE:NIO) is an example of a China-based EV manufacturer that is showing signs of slowing sales. October sales slumped by 27.5% year-over-year to 3,667 vehicles.

Ahead of the report, NIO stock traded in a range. Lucid investors may need to consider selling the stock whenever valuations appear too lofty. This would preserve capital gains. When it slumps, they may buy the stock back.

The buy and sell strategy will trigger capital gains tax for investors holding LCID stock outside of a retirement plan. Still, the after-tax gain is better than having none at all.

Risks Abound for Lucid

Tesla is artificially lifting Lucid’s valuations in the near term. The Rivian initial public offering is also lifting the price-to-earnings multiples in the EV sector. Momentum may ease, hurting LCID stock and the sector.

As a new product on the market, Lucid’s EV may have bugs. It will realize some safety issues that will require a recall. This will add to operating costs, hurting results. If the issues are minor, shareholders need not worry about this risk.

Value investors will continue to scoff at buying Lucid, especially after the impressive rally.

Toyota (NYSE:TM) is betting on hybrid vehicles first. It is taking a stepwise approach to implementing its long-term vision of EV. TM stock trades a deep value territory. Its price-to-earnings is below 10 times.

Honda Motor (NYSE:HMC) is even cheaper. The stock trades at a price-to-earnings-growth ratio of around 0.5 times. Speculators poured money into high-flying EV stocks and likely sold Honda and Toyota stock.

Investors who want to diversify their EV holdings with value should both HMC and TM stock.

In the U.S., General Motors (NYSE:GM) is pouring billions into its electrification plans. The stock is trading in a wide range. It also trades at a depressed P/E well below 10 times. Still, income investors may demand a dividend before buying GM stock again.

Your Takeaway

Lucid is distinctly different from Tesla. It is a premium product catering the wealthy and upper class first. Once it establishes its brand with customers, it will expand its market. The company must achieve economies of scale when it sells EVs at under $80,000. If losses mount on higher sales, then the stock may slump. Its fair value is not yet known until 2023.

Until then, Lucid will reward investors willing to buy the stock any time it dips.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.

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