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Should Investors Expect Lucid Group to Become the Next Tesla?

By John Rosevear – Oct 2, 2021 at 7:03AM

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Lots of EV start-ups hope to follow Tesla's meteoric rise. Could Lucid actually do it?

Many electric-vehicle start-ups have tried to lay claim to being the "next Tesla (TSLA -1.14%)." For most, it's just hyperbole. But Lucid Group (LCID -0.91%), which is led by a Tesla veteran and is following a path not unlike Tesla's famous "secret master plan," might actually warrant some consideration for the title. 

In this Motley Fool Live broadcast, recorded on Sept. 23, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear took a closer look at Lucid and whether it might someday be worth a Tesla-like valuation. 

A transcript is below the video.

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Nick Sciple: Let's lead off the bat and talk about what's going on with new start-ups, new vehicles entering the electric vehicle space. The one that's gotten a bunch of headlines in the past week or so is that Lucid is coming to market with their Lucid Air vehicle. They released a data point in the past week or so, that the Lucid Air Dream Edition R will have 520 miles of approved range. That's 100 miles more than its closest competitor. What does this mean for you, John, as someone who follows the electric vehicle industry?

John Rosevear: Well, Lucid is an interesting company. The CEO, Peter Rawlinson, is a Tesla veteran. He was actually chief engineer on the Model S back in the day. He has conceived this for a long time as Tesla 2.0, it's what you buy after the Tesla. The Lucid Air, you can option it up to almost $170,000. It's a serious luxury car. What it means here is that we've been hearing from them for a few years now, "This is what we're going to do," Well, they've delivered on the range claims. All versions of the Lucid Air get over 400 miles of range on the EPA test cycle. It's a good sign, it's a bullish sign. The special long-range, high-end edition gets, what did you say, 520 [miles of range]. It's a good sign for the company that they're delivering. Now, with production expected to start sometime in the next few weeks, we'll see what the actual cars are looking like, the production versions.

Nick Sciple: You mentioned that this is a car that is yet to go into full-on production, but if you look at the valuation of the company, you would think there were firing on full cylinders. It came public via SPAC in late July when I last looked at it, you're looking at around a $40 billion market cap. That's against Ford's around 50 billion. You're getting big valuation here. When you look at the potential of this company, what do you see as the potential energy inside, can it live up to this $40 billion valuation. How do you think about that?

John Rosevear: It's a bit of a stretch. It depends on whether we're applying traditional auto metrics or Tesla metrics. It's a bit of a stretch. Lucid, at least for the near term, is operating in a high-end luxury space. They're not going to be selling a million vehicles a year anytime soon. If they do 40,000 -50,000 of the Air a couple of years out, I think there will be pretty happy. [Longer term], the plan is not unlike Tesla's "secret master plan" from years ago, to start with the high end and move down over time as they build scale, as costs come down and so forth. But Lucid has staked out a niche. I think it's a niche where they can be profitable. I don't know if it's a $40 billion niche. I think we're going to have to wait and see how things go over the next couple of years. That said, I like the company, I like the management team, I like what they've done so far. They are being advised by some very good people, including former Ford CEO Alan Mulally. They're going about this the right way, and there's a lot to like here. The valuation, it depends on your context, I think. If you're thinking of this in Tesla terms, $40 billion isn't expensive. If you're thinking of it in legacy auto terms, it's a lot of money.

Nick Sciple: Yeah. This is a company that probably has a somewhat credible claim to the "next Tesla" branding that we see lots of companies trying to brand themselves with, because you have the folks who have historically worked at Tesla and scaled up the Model S. Last, trying to follow a similar model with your super high-end car. Then hopefully, we can expand into other offerings in the future. We'll see what happens there. The market thinks it's going to be a glorious future. We'll see the extent to which that plays out. 

Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lucid Group, Inc. Stock Quote
Lucid Group, Inc.
LCID
$9.76 (-0.91%) $0.09
Tesla Stock Quote
Tesla
TSLA
$180.83 (-1.14%) $-2.09
Ford Stock Quote
Ford
F
$13.75 (0.15%) $0.02

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