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Lucid and Nio Are Down Over 30% From Their Highs. Is it Time to Buy?

By Daniel Foelber and Howard Smith – Updated Dec 6, 2021 at 10:33AM

Key Points

  • Lucid has potential but could falter for factors outside of its control.
  • Nio investors may have lost confidence after it had a big slowdown in shipments in October, but there's more to the story. 
  • Lucid and Nio remain two of the best plays in the EV space.

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The tech sell-off is rippling into the EV industry.

In a matter of weeks, many growth stocks have gone from hot to cold over fears of an economic slowdown, the omicron COVID-19 variant, and valuation concerns.

Lucid Group (LCID 5.51%) and Nio (NIO 0.48%) are two very different electric vehicle (EV) companies that are looking to make names for themselves on the global stage. Despite their potential, however, both companies are seeing their share prices sink. Let's determine if now is the right time to buy Lucid and Nio, or if investors should run for the exits.

The Nio ET7 electric sedan in aerodynamic testing.

Image source: Nio.

This wild ride is showing no signs of slowing down

Daniel Foelber (Lucid): Lucid had a banner year in 2021. It began mass production and deliveries of its Lucid Air Dream Edition sedan, was named the MotorTrend 2022 Car of the Year, and crushed range ratings by the Environmental Protection Agency (EPA). As a result, investors piled into its stock, which is up over three-fold for the year.

LCID Chart

LCID data by YCharts

However, even Lucid is showing signs that it's cooling off. The stock is now down around 30% from its high, in lockstep with the broader EV industry. Lucid's success in 2022 and beyond depends on a lot of things going right. It needs to increase its manufacturing capacity, produce and deliver an average of 55 cars per day, expand its product line, and develop its Gravity SUV -- and most importantly, fend off the swath of legacy automakers and new players that are champing at the bit to develop their own battery technology. It's a tall order, but Lucid has so far proven an ability to deliver on its promises.

As impressive as Lucid's year has been, the reality is that the company is incredibly young and has yet to build the track record necessary to fend off skepticism. Referring to the chart above, it's clear to see that Lucid stock was initially met with euphoria and optimism before undergoing a roughly six-month period in the doldrums.

Because Lucid doesn't have meaningful financial metrics like revenue and profit, its performance depends on its ability to prove to investors that people want to buy its cars, it can produce the cars they want to buy, and it will sell even more cars in the future. At the end of the day, there are many factors that lie outside of Lucid's control, namely the chip shortage. However, Lucid has an advantage over other automakers: It isn't too reliant on third-party suppliers, because it builds its own battery packs and controls much of its production process.

Looking at the big picture

Howard Smith (Nio): Shares of Chinese EV maker Nio are down more than 30% year-to-date, and are 50% off January 2021 highs. The company was valued at close to $100 billion at those highs based on its potential and expected continued strong growth in the global electrification of transportation. But a semiconductor chip shortage hit the industry this year, and affected production for many automotive manufacturers. 

Nio wasn't immune to that, and it contributed to the drop in shares that has the company's market cap now at about $54 billion. That's still richly valued considering the company has yet to be profitable, and a sharp drop in vehicle deliveries in the month of October spooked investors further. But this week, Nio reported its November delivery results, and that drop in valuation may make now a good time to buy Nio shares. 

Nio reported a monthly record for vehicle deliveries in November. That helps to alleviate concerns over supply constraints, and verifies that much of the dip in October was due to an interruption in production as the company prepared to upgrade its manufacturing lines for higher volume and new products. A look at how Nio's monthly deliveries progressed throughout 2021 shows the growth pattern appears intact. 

chart of Nio monthly vehicle deliveries in 2021.

Date source: Nio financial statements. Chart by author.

Through November 2021, Nio deliveries have increased more than 120% over the comparable period in 2020. But even the record November figure only represents about half of the production capacity the company is working toward. That expansion is scheduled to be complete in the spring of 2022, and the company believes there's plenty of demand to support that growth. Nio began exporting vehicles for the first time in July 2021 as it set up a presence in Norway. It expects to move into Germany next year too as it also launches several new products. 

With that bigger-picture perspective, the decrease in the share price seen this year might make now a good time to buy for investors with patience and the appropriate risk tolerance. 

A great industry to invest in

Lucid and Nio are two of the better up-and-coming electric car growth stocks. Both companies have real competitive advantages that could take them far as developed economies transition away from the internal combustion engine to the electric motor. Investors that agree with the long-term thesis of each company could do well to pick up shares on sale, or take a more conservative approach with a basket of EV stocks.

Daniel Foelber owns shares of Lucid Group, Inc. and has the following options: short December 2021 $20 calls on Lucid Group, Inc. and short February 2022 $20 calls on Lucid Group, Inc. Howard Smith owns shares of Lucid Group, Inc. and NIO Inc. The Motley Fool owns shares of and recommends NIO Inc. and Tesla. The Motley Fool has a disclosure policy.

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