Electric vehicle start-up Lucid Group (LCID 0.41%) was one of 2021's most anticipated special purpose acquisition (SPAC) stocks. Tesla's (TSLA -1.92%) success has drawn much attention to the electric vehicle (EV) industry, where investors are looking for the next big thing.
Lucid is in the early stages of building out its manufacturing capabilities, but the positive reception of the company's first vehicle model, the Lucid Air, has investors thinking big. Could Lucid be one of 2022's biggest winners and reach a whopping $100 per share? Let's investigate.
Image source: Getty Images.
Following the Tesla playbook
Lucid has a little bit of Tesla in its DNA. CEO Peter Rawlinson used to work for Tesla; he was a chief engineer for its flagship car, the Tesla Model S. Given Tesla's success, it might not be surprising to see Rawlinson crafting Lucid's strategy to resemble his former employer's.
Like Tesla, Lucid is starting upmarket, aiming to break into the automotive industry with a high-end model. The Lucid Air is just that, starting at a price of approximately $77,000 and ranging up to $169,000. The company has an SUV model planned to begin deliveries in 2023 and uses a direct sales approach like Tesla's instead of working through dealerships like most incumbent automakers.
The company laid out an aggressive ramp-up schedule when the stock went public, estimating vehicle deliveries growing from 20,000 in 2022 to 251,000 in 2026, generating revenue of $22.7 billion that year.
Lucid's role as a luxury brand could limit the kinds of commercial opportunities that Tesla (Semi and Model 3) and Rivian (which makes delivery vans for Amazon) have taken advantage of, meaning Lucid could live or die by the consumer market. Fortunately, the Lucid Air is off to a great start; it has received accolades and an impressive 520-mile EPA rating.
Translating $100 per share into a valuation
The tricky part is that a hyped stock requires that investors make some assumptions about how the business will perform in the future. If Lucid were to meet its 2022 estimates, the resulting $2.2 billion in revenue pales in comparison to the stock's hefty $64 billion market cap.
LCID Revenue Estimates for Next Fiscal Year data by YCharts.
The stock's forward price-to-sales ratio is nearing 30, topping Tesla's P/S of 20 despite Lucid having much to prove at this point. One could argue that a smaller and faster-growing competitor might command a premium valuation once it demonstrates its ability to meet delivery estimates, so what would $100 per share look like from a valuation perspective?
The share price is currently just under $40, so if the stock traded at $100, the resulting market cap would be in the $164 billion range, making that P/S ratio more like 74, and it is still 30 if we use management's 2023 revenue guide of $5.5 billion. Is this possible? Of course, though it would likely take an irrational price movement for the stock price to reach this high, and it might remind one of a bubble instead of a sound investment. Therefore, I believe it's doubtful that Lucid can reach this price in the next 12 months, except under very bubble-like conditions. But I do think it could eventually legitimately get there.
When might $100 be likely?
Investors might want to be careful not to assume that Lucid will earn the same valuation as Tesla. While Lucid is a much smaller company at this point and will likely see faster growth as production ramps up, Tesla is the proven leader in electric vehicles and has created additional value through its self-driving technology. Lucid appears to be a ways off from having a comparable level of autonomous capability.
The stock needs an approximately $164 billion market cap to hit $100 per share, so I can create some scenarios using Lucid's revenue estimates. For reference, Lucid is projecting revenue as follows:
- 2022: $2.2 billion
- 2023: $5.5 billion
- 2024: $9.9 billion
- 2025: $14.0 billion
- 2026: $22.7 billion
Tesla's P/S ratio has fluctuated over the past three years, so I will look at Lucid using three valuations: P/S ratios of 10, 20, and 30.
TSLA PS Ratio data by YCharts.
If the stock commands a P/S of 10, Lucid will achieve a $100 share price sometime in 2026. For a P/S of 20, this happens in 2024. Finally, a P/S of 30 would likely push Lucid to $100 per share by late 2023.
What's ultimately important is that investors tamp down their expectations; there is a lot of execution risk in Lucid's stock because the company is so young. It has to prove the demand for its vehicles and meet that demand by executing on manufacturing. The assumptions above also exclude the possibility of new shares being issued in the future to raise funds.
There is a lot to like in Lucid, and early feedback on the Lucid Air is promising. However, there are a lot of "what ifs" in justifying a $100 share price in the near term, so investors should approach the stock with a long-term mindset and conservative expectations.
