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Lucid Motors Still Faces Looming Market Saturation

InvestorPlace - Stock Market News, Stock Advice & Trading Tips The luxury end of the electric vehicle market may be saturated by 2025. What will Lucid and LCID stock owners...

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This story originally appeared on InvestorPlace

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

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Lucid Motors (NASDAQ:LCID) stock is recovering from the latest December tech wreck. The price of Lucid stock fell from $55 in late November, but found support around $37. LCID rose 4% on Jan. 6.

A photo of the Lucid Motors Air EV from 2018.
Source: ggTravelDiary / Shutterstock.com

With at least one analyst predicting a trip back to the old highs, our Will Ashworth is among those recommending LCID stock for aggressive investors. I’m not an aggressive investor.

Like China’s Nio (NYSE:NIO), Lucid is going after the luxury sedan niche of Tesla (NASDAQ:TSLA). It plans to sell 20,000 of its Lucid Air sedans this year. Lucid says the Air can run for over 500 miles on a charge, with prices topping out at $169,000, and financial backing from Saudi Arabia.

LCID Stock: Estimating Demand

Lucid expects $2.2 billion in revenue from those 20,000 cars. It plans to launch an SUV called the Gravity in 2023, and produce 90,000 vehicles that year.

But Lucid stock’s Jan. 7 price translates to a market cap of $68 billion — 31 times 2022 revenue. Confidence is high because luxury electrics sell out long before they’re produced. Buyers are still paying Lucid up to $1,000 just to get on its waiting list.

How long will that remain true? A recent survey of car buyers by DeLoitte indicated 69% of Americans still like gas-powered cars bought in-person at a dealership. Consumers continue to suffer from “range anxiety.” Charging infrastructure is still lacking, except for Tesla. Even in China, where charging infrastructure is rapidly maturing, 58% want an “old-fashioned” engine and drive train.

Despite this, electric vehicle stocks remain strong around a Tesla halo. Tesla made and sold almost 1 million vehicles in 2021, and Lucid was able to sell $1.75 billion in notes convertible to shares at almost $55.

The bullish case for Lucid is based on ample cash and the idea that buyers from places like Saudi Arabia will flock to the vehicle. That may be true for 2022, but what about 2025? Car makers are expected to produce 14.8 million battery-operated cars that year. Electrics are expected to make up 20% of global demand that year.

The Bear Case for Lucid

But how many will be luxury cars? Electric cars are simple machines compared with gas-powered cars. They’re expensive only because Tesla, and its imitators, load them up with computers, aiming to let them drive themselves. But if the car is driving itself, why should the passenger care about how it looks?

In China, the most mature electric vehicle market, the best-seller is the Hongguang Mini, developed by General Motors (NYSE:GM) and state-owned SAIC. It costs roughly $4,500 but has a top speed of just 62 mph and travels just 75 miles on a charge.

If urban consumers are satisfied with something like the Mini, what does that mean for the long-term prospects of luxury names like Lucid?

The Bottom Line on LCID Stock

Whoever wins the luxury electric vehicle market, that pipeline is going to be full by 2025, now less than 3 years away.

The mass market is still waiting to be won. Winning it will require lower prices, massive charging infrastructure and a wider range of offerings than any western company, even Tesla, can yet produce.

While attention is focused on SUVs and full-size pick-ups, most of the car market wants more utilitarian vehicles. I’d love to replace my Toyota (NYSE:TM) Scion with an electric, but I don’t drive enough to justify the cost of even a Tesla, let alone a Lucid Air.

You can speculate on Lucid, or Rivian (NASDAQ:RIVN) or even Tesla if you like. I’m increasingly convinced the electric market will be won by companies like Volkswagen (OTCMKTS:VWAGY) and GM, by Rabbits and Chevys instead of Cadillacs and BMWs.

On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.

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