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Lucid Stock Surged 280% in 2021-- Is It a Buy for 2022?

By Rekha Khandelwal – Jan 4, 2022 at 11:02AM

Key Points

  • Investors will be watching how Lucid fares on the delivery front in 2022.
  • Over time, Lucid aims to target the mass market with lower-priced vehicles.
  • Like other EV stocks, Lucid stock is trading at a rich valuation.

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The electric vehicle maker has huge plans for the new year.

Investors broadly agree on the thought that electric vehicles (EVs) are the future of transport. What they are divided on, however, is whether EV stocks make a good buy right now considering their high valuations.

As an example, consider Lucid Group (LCID -0.61%). The EV start-up started deliveries of its first cars in October 2021. For 2022, the company expects to produce 20,000 vehicles. Yet, Lucid stock is currently trading at a market capitalization of more than $60 billion. Notably, that's down significantly from a valuation of more than $90 billion that the stock was sporting in November. Lucid stock rose 280% in 2021. Let's discuss the key factors that may drive the stock in 2022.

Can Lucid deliver?

The first big factor that's going to drive Lucid stock in the new year is the company's ability to deliver in line with its targets. Lucid aims to deliver 20,000 cars in 2022. After delivering an impressive car with a top range, performance, and design, Lucid's next task is to deliver vehicles at scale. If the company progresses well with its delivery plans, the stock could see continued momentum in 2022.

Three Lucid Air cars on the road.

Image source: Lucid Group.

At the time of Lucid's third-quarter results, the company showed confidence in its ability to deliver cars as per its plans. The company's factory in Casa Grande, Arizona, has a production capacity of 34,000 vehicles per year. 

Furthermore, Lucid plans to launch the Grand Touring, Touring, and Pure versions of the Lucid Air in 2022. In 2023, Lucid plans to start production of its SUV called Gravity.

In the game for the long term

Lucid has delivered an electric car with a longer range than that available in the market. Notably, that wasn't only due to a larger battery pack. The efficiency -- the distance a vehicle can travel using a specific amount of electricity -- of Lucid's batteries is also higher. The Lucid Air enjoys a battery efficiency of more than 4.5 miles per kilowatt-hour, higher than Tesla's Model S's efficiency of 4 miles/kWh. 

Lucid has been working on its battery technology for more than 10 years. Its batteries are used by teams in Formula E, the world's premier EV racing series. Cutting-edge EV technology is a clear plus for Lucid.

Beyond technology, Lucid has solid growth plans. It plans to increase its vehicle deliveries to 50,000 in 2023. Over time, the company aims for 500,000 annual vehicle deliveries. To achieve that, Lucid plans to expand its target market. First, the company plans to enter the Middle East and China markets. Second, it plans to target the mass markets by introducing lower-priced vehicles.

The Lucid Air's Dream Edition starts at $169,000. By comparison, pricing of the Air Pure, which the company plans to launch in 2022, will start at $77,400. Lucid believes that as its batteries are more efficient, it can achieve the same range as other available electric cars in the market at a lower cost. This will not only help it in offering attractively priced vehicles for the mass market, but also generate a higher margin than its competitors.

Is the EV stock a buy?

With very few deliveries so far, Lucid stock's market capitalization of more than $60 billion looks gigantic. However, if we consider the company's plan of generating nearly $23 billion in sales in 2026, the valuation doesn't look too unattractive. Many electric vehicle stocks are lately trading at such high valuations.

A widely held belief is that EV companies can generate recurring revenue through software and subscription services, which differentiates them from legacy auto companies. Whether this turns out to be true or not remains to be seen. In addition to the high valuation, another risk that Lucid faces relates to execution. If the company's costs exceed its expectations, its margins might potentially get hurt.

In short, Lucid stock faces risks, but that is true for nearly every EV stock out there. So, if you have a high tolerance for risk, Lucid stock could be a great addition to your EV portfolio in 2022.

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

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