Back in February, Lucid Group (LCID) stock had surged to highs of $65. The rally was euphoric and before the completion of the SPAC business combination.
Therefore, it didn’t take time for LCID stock to correct to levels of $20. After an extended period of consolidation, Lucid stock surged in the recent past to levels of $55.
The current rally was driven by strong fundamental developments than merely speculation. However, after surging over 100% in one month, Lucid stock has corrected.
Additionally, the company announced a $1.75 billion convertible senior note offering that contributed to the stock decline.
I believe that the correction presents a good opportunity for long-term investors. I am bullish on LCID stock. Lucid Group, a pure-play electric vehicle company, is positioned to survive and grow in the coming years. (See Analysts’ Top Stocks on TipRanks)
Positioned for Strong Deliveries
Lucid has already commenced commercial production and delivery of its initial model, Lucid Air. The company already has reservations of 17,000 vehicles as of November 2021. This translates into an order book of $1.3 billion.
There is a high probability of strong vehicle deliveries in 2022. The key reasons are as follows:
First and foremost, Lucid Air has received an official EPA rating of 520 miles range. It’s the longest-range electric vehicle ever rated by the EPA. This provides a differentiating factor among competitors. The model is likely to attract increasing attention from premium EV buyers as retail presence expands.
Furthermore, Lucid has been expanding its presence in the United States. Additionally, the company recently entered the Canadian market. International expansion will continue with presence in EMEA in 2022 and in China in 2023. As the addressable market expands, the company will be positioned to accelerate deliveries.
From a manufacturing perspective, Arizona already has a production capacity of 34,000 vehicles annually. The company has initiated the second phase of expansion, which will increase the capacity of 90,000 vehicles.
Lucid Must Burn Cash to Sustain Itself
Strong vehicle deliveries will translate into revenue upside in the coming years. However, Lucid Group has guided for an extended period of cash burn.
Lucid Group expects that free cash flow is likely to remain negative through 2024. For the next three years, the company has projected for cash burn of $7.5 billion.
It’s worth noting that these estimates are based on an optimistic projection of vehicle deliveries in the coming years. It will not be surprising if cash burn is more than $7.5 billion in the next few years.
The key point here is that Lucid Group reported cash and equivalents of $4.8 billion as of Q3 2021. Additionally, the company raised proceeds of $1.75 billion. A part of the proceeds will be utilized for business expansion.
Considering the potential cash burn, Lucid will need to raise further funds. However, it’s not a concern if vehicle deliveries remain robust.
Lucid Targeting Mass Market Car
Initially, Lucid Group was focused on the luxury car market. In the next few years, the company is likely to launch a mass-market car.
In February 2021, the company’s Chief Executive Officer Peter Rawlinson mentioned that six well-known automakers have reached out and expressed interest in Lucid Motor’s technology.
The CEO believes that collaborating with other carmakers can help Lucid launch a $25,000 car in the next three to four years.
A car for the mass market can be a possible game changer. It can help boost the company’s market share in a fiercely competitive industry.
Wall Street’s Take
Turning to Wall Street, Lucid has a Moderate Buy consensus rating, based on two Buys and one Sell rating assigned in the past three months. The average Lucid price target of $44.33 implies 16.4% upside potential.
Bottom Line
Lucid Motors is investing in technology to stay ahead of the curve. The company’s 520-mile range car is an example of a key differentiating factor.
It’s also worth noting that the electric vehicle industry has a multi-decade tailwind. With Lucid planning international expansion, there is a big addressable market.
LCID stock is therefore attractive and worth considering in the current correction.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article.
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