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Why Lucid Stock Crashed Today

By Neha Chamaria – Dec 20, 2021 at 7:30AM

Key Points

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An analyst sees Lucid stock as fairly valued, but there's something else you want to know.

What happened

Once-hot electric vehicle (EV) stock Lucid Group (LCID 0.13%) cooled off Monday morning and sank 5.5% as of 11:15 a.m. ET. At that point in time, Lucid shares were trading just under $38 a share, the "fair value" an analyst just posited on the stock.

So what

On Dec. 20, Guggenheim analyst Ali Faghri started coverage on Lucid stock with a neutral rating and a fair value of $38 apiece. With Lucid stock closing Friday, Dec. 17, at $40.01 a share, it's not surprising to see it sink Monday after the analyst rating.

A Lucid Air electric car.

Image source: Lucid Group.

So what is it about Lucid that has caught Faghri's attention? Several things, as reports, including:

  • "Best-in-class" EVs and technology.
  • Vertical integration (Lucid builds its battery and powertrains systems in-house).
  • A "clean-sheet" strategy that should boost margins as Lucid scales production, deploys capital efficiently, and improves product quality.

Now if everything's so good about Lucid, why does Faghri believe the stock is fairly valued at just $38 per share? The analyst sees near-term risks, such as decelerating volumes in the fourth quarter and 2022 as Lucid ramps up capacity.

Lucid started first production only in September 2020 and delivered its first car, the premium Lucid Air Dream Edition, on Oct. 30. Aside from Air Dream, Lucid has also been taking reservations for three other models. Its total reservations across all models had crossed 17,000 as of Nov. 15, and Lucid is presently constructing phase 2 of its only manufacturing plant in Casa Grande, Arizona. At 13,000 reservations, Lucid estimated its order book to be worth $1.3 billion.

Lucid says its clean-sheet approach to vehicle development, or creating products from the ground up, is one of the major reasons why the Air with six trim variants could achieve battery range ratings exceeding 450 miles, including one that beat Tesla's longest-range car.

Now what

It's true that Lucid will have to aggressively scale up production to meet its growing order book, and it's also true that in doing so, it may see some slowdown in production volume as it upgrades existing assembly lines.

We saw that happen at Nio (NIO 5.93%), which reported a surprise 27.5% year-over-year drop in its October EV deliveries, citing lower production volumes as it restructured and upgraded manufacturing lines ahead of new product launches. Nio, though, swung back to action the very next month -- its November deliveries shot up 105.6% year over year.

So yes, near-term hiccups are just that -- near-term -- and shouldn't affect your investing thesis for Lucid stock. For that matter, Faghri arrived at Lucid stock's fair value based on bearish case price of $12 a share, but a bullish case price as high as $83 per share.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns and recommends NIO Inc. and Tesla. The Motley Fool has a disclosure policy.

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