Lucid Motors (LCID 0.92%), which went public a few months ago and just started delivering vehicles to customers, is a richly valued company. In this Fool Live video clip, recorded on Nov. 22, Fool.com contributors Jason Hall and John Rosevear discuss whether it could become a home run for patient long-term investors, despite its expensive valuation.
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John Rosevear: About 3, 4 years ago when Lucid was very much a start-up. I met and spent some time with Peter Rawlinson, who is the CEO, who wasn't that chief engineer on the Model S and parted ways with Tesla (TSLA -0.64%). Intelligent people have after bumping up against Elon over the years. He was a man on a mission and he impressed me at the time as someone who is determined to do this the right way.
He had a mix of EV veterans, a lot of people from Tesla as well as Legacy Auto people. He was like we've got one shot to do this, we got to deliver a high-quality product, especially on luxury. I sat in the prototype, Lucid Air, one of them that was the one that had a complete interior and it's very impressed. It's definitely luxury. It's a little different expression from Mercedes. It's more about light and air and fine materials than it is dark wood, and heavy leather, and that stuff. They impressed me a lot then. I put them high on my list of up-and-coming companies to watch.
They have delivered on everything they promised. The Air is an extremely well-built product. It gets the range. They said it has the performance they promise. All of that's great. Really of this cohort of EV start-ups, I'd probably ranked Lucid at the top for execution so far. Again, my question is, ultimately, what's it worth? How many of these Lucid Airs that they're going to sell?
They are running the Tesla playbook to some extent in that the expensive cars will fund the less expensive cars, they'll move down market over time. They'll make their battery technology available to other players and so forth. But there's a lot of risk folded in here. But this is a real company, and I'm more comfortable saying that than I am about just about any of the other new EV entrance, aside from Tesla, obviously is a real company. This is a real company with real customers, and real product, and real prospects.
Jason Hall: That Lucid, Air it's like a $170,000 and $180,000 car?
Rosevear: Right now. Yes. They're starting with the top trim models. The base model will be more like $70,000, but yeah, it's a big, fast luxury sedan.
Hall: Even at $70,000, the market is an order of magnitude smaller than things, something that's 30-something. I think that's the thing people have to remember, is how much larger the market gets the further downstream you get. But also how much thinner margins get the further your downstream will get. Thinking about all of these companies that we've gone through, the ones that can command higher margins are selling in a much smaller market and those are going to be competing with one another, over those fewer and fewer customers.
All of these things converging to me, that's the biggest risk for the ones that are making the high-margin vehicles, for the ones that are going mass-market. All of the challenges that we talked about with the risks of trying to get into that industry as a manufacturer. Fisker (FSR 2.75%), the model of a contract manufacturer actually making the whole vehicle, they all use suppliers. That's the industry. They're assembling stuff that other companies have made 90% up.
Fisker is paying somebody else to assemble the entire vehicle, that 100% of the parts were manufactured by other companies. It's just a really dynamic challenging space. I was looking back through the rankings and I decided mid show to change Rivian (RIVN 0.37%) and Lucid. It just made the exact same order that we put them in a little more definitive. But these are still down at the bottom for me because the market values are so high, what they've generated so far, and even what I think they can generate to me says these companies were worth substantially less than the market values of right now, even if they continue to execute well. As John was talking about, they've done what they said, even if they continue to do what they're saying. I just have a tough time seeing this is a $70 billion company.