Electric vehicle (EV) companies were the talk of the town in 2021, partly because there was so much to talk about.

Many up-and-comers such as Chinese automakers Nio and XPeng and U.S. firms like Lucid Group (LCID -2.33%) and Rivian Automotive were making names for themselves. Then there were the major capital commitments that seemingly all the legacy automakers were making toward their own EV projects. The ramp-up in activity suggests the world is ready to transition in earnest from the internal combustion engine to the electric motor.

Among the top electric car stocks in 2021 were Lucid and Tesla (TSLA -0.74%). If you had split a $10,000 investment 50/50 between the two at the start of this year, your investment would be worth $21,600 today. But those gains are in the past. What's the investment case for each company going forward, and can the case still be made to buy stock in these two EV makers?

Image source: Lucid Group.

The case for Lucid

Lucid Group now trades under its own LCID ticker on the Nasdaq exchange. Yet for most of the year, the primary way to invest in Lucid was through Churchill Capital IV, a special purpose acquisition company (SPAC). 

A SPAC's sole purpose is to raise capital that it can use to bring a private company public. It's like an initial public offering, except the SPAC gets listed on a stock exchange, in this case, the New York Stock Exchange, prior to merging with the intended company. Before the merger was completed on July 23, investors could buy Churchill under the assumption that its management team, Lucid's management team, and their compliance departments would successfully merge the companies to give Lucid the $4.4 billion in cash needed to fund its 2022 operations.

Before the merger, Churchill stock was extremely volatile, as there wasn't a lot of news on Lucid. It released major presentations in February, May, and July. But aside from that, all investors could really do was wait to see if the merger went through. 

After the merger, the automaker began mass production of the Lucid Air Dream Edition in late September, and began customer deliveries of the sedan in October. During its third-quarter conference call in mid-November, management said it had more than 17,000 reservations across the four trims of the Lucid Air, and said the company was on track to produce and deliver 20,000 vehicles in 2022.

The bulk of Lucid's share price gains came during the past few months as the excitement grew about the prospect of the company maturing into a legitimate player in the luxury electric sedan segment. Investors looking at the stock now may raise their eyebrows at Lucid's $66 billion market cap and its 300% year-to-date gain. Given the company's risks and its valuation, it probably shouldn't be the only EV stock in your portfolio. But given its potential upside and its competitive technology, it's certainly worth considering as part of a basket of EV stocks.

The case for Tesla

It wasn't long ago that Tesla's stock price was up over 70% year-to-date and was the fifth-most-valuable U.S. company with a market cap of more than $1.2 trillion. But the EV leader has had a rough couple of months in the market; its share price slipped by more than 25% from its peak as investors grappled with valuation concerns and broader market volatility.

But don't get distracted from the bigger picture here. Tesla is still outperforming the S&P 500 year-to-date, and that's after a 743% increase in 2020. In fact, many would have probably predicted that Tesla would fall this year after 2020's massive run-up. Further, consider that most of last year's hot Wall Street trends have cooled off in 2021. Solar and wind energy stocks, which were some of the best performers last year, are generally down this year. And many "pandemic plays" like Peloton Interactive, Teladoc Health, Zoom Video Communications, Block, and DocuSign have seen their share prices absolutely crushed.

LCID Total Return Level data by YCharts

This is all to say that Tesla has been arguably one of the strongest stocks to own over the last two years. Its business is truly different now than it used to be. Tesla the company has it all -- profitability, high operating margins, incredible technology, a great management team, and extremely fast growth for its size. Whether these features validate its current valuation is a subject of contentious debate. But there is no denying the automaker's accomplishments.

What to do now

Lucid and Tesla are both beating the market so far this year, but neither of their market caps can be justified based on their current performance. Rather, those valuations reflect the consensus among investors that both companies will become a lot larger in the future, producing more cars and expanding into new markets. Anything that hinders those trajectories could impact the investment theses for those stocks.

It's up to the individual to decide if they think Lucid and Tesla can grow into their respective valuations over time. For some investors, taking a wait-and-see approach could be the best option. For others, crafting a starting position in a basket of EV stocks could be a reasonable way to dip their toes into an exciting industry without putting too much on the line at once.