Volatility is rippling through the U.S. stock market as investors grapple with a record-high stock market, valuation concerns, potentially higher interest rates, and an ongoing pandemic. Yet that hasn't stopped many investors' appetites for growth stocks that have the potential to compound in value over time.
When scanning the horizon for a top growth stock to buy in 2022, up-and-coming electric-vehicle (EV) player, Lucid Group (LCID -0.61%) looks like an option worth considering. Here are the main reasons why.
As a newly public company looking to make a name for itself in the luxury-EV market, Lucid must walk the thin line between growth and managing its cash position until it becomes profitable. To its credit, Lucid raised $4.4 billion in net cash from its merger with a special purpose acquisition company called Churchill Capital IV in July, then another $1.75 billion from a convertible senior-note offering with an initial conversion rate of $54.78 per Lucid share -- significantly above the current stock price.
Despite the rich cash position, Lucid isn't just blowing money and overextending itself. Rather, it's gradually opening showrooms, service centers, and growing manufacturing capacity in a disciplined way. As of its 2021 third quarter, Lucid has 16 studios (its version of a vehicle showroom and sales site) and service centers in the U.S. and Canada located in key markets and major cities.
The EV-maker expects to produce and deliver 20,000 vehicles in 2022. It currently has over 17,000 Air reservations and a manufacturing capacity of 34,000 units per year at its plant in Arizona. Its Advanced Manufacturing Plant-1 (AMP-1) is next to its Lucid Power Train Manufacturing facility (LPM-1), so Lucid is designing and producing its integrated powertrain, including its battery packs, all in the same place.
Lucid was initially going to increase its manufacturing capacity to 53,000 vehicles per year, then 90,000 vehicles per year, but it decided to expedite those two expansions into one project that should be complete by 2023. In its Q3 2021 conference call, Lucid management said that AMP-1 has the potential to produce 365,000 vehicles per year and plans to produce 500,000 vehicles by 2030.
A riskier approach
Lucid is choosing not to ramp up manufacturing capacity ahead of demand. This strategy is in exact contrast to Rivian Automotive (RIVN -2.28%), another EV newcomer to public markets.
Rivian already has an annual capacity of 150,000 units at its Illinois plant but is expanding that to 200,000 units and building a 400,000 unit-production plant in Georgia, despite only delivering 386 cars in 2021 and having 71,000 reservations for its R1T pickup truck. Rivian is also building its own EV-charging network, not to mention it's also choosing a direct-to-consumer model like Tesla and Lucid that will demand service centers and showrooms.
This is all to say that Lucid, more so than Rivian, is easing into its growth by not overextending its expenses faster than demand. Despite the potential in the electric-car industry, taking a regimented-growth approach offers a better chance to grow into a viable industry participant and avoid any slip-ups that could damage the long-term investment thesis.
In addition to a great strategy, Lucid also has incredibly impressive technology that has the legacy automakers on their toes. Lucid made headlines when the U.S. Environmental Protection Agency (EPA) gave the Air Dream Edition sedan a 520-mile rating and over 1,000 horsepower. However, the car costs $169,000, and Lucid recently stopped taking reservations as it looks to release lower-priced offerings to attract more buyers. What's impressive about Lucid is that, even the lower-priced versions of the Air, such as the Air Pure and Air Touring, both are expected to have over 400 miles of range, with the Air Pure starting at a more reasonable $77,400.
Lucid's competitive advantage is its battery technology -- specifically, its battery efficiency, which allows it to generate faster charging and more power from a compact battery pack. A key test will be Lucid's ability to leverage its battery technology into more affordable vehicles and other models, like its upcoming Gravity SUV. If it can do that, then it should be able to carve out a niche for itself in an auto industry that includes more EVs in the future.
Stepping up to the plate
2022 will be a big year for Lucid, as it must prove it can produce and deliver new trims of the Lucid Air while expanding its manufacturing capacity and charting a path toward long-term revenue growth and positive operating cash flow. After all, Lucid doesn't have a $69 billion valuation for what it's going to do in 2022 or even over the next few years. Rather, it's because investors believe that Lucid can grow into a major player in the luxury-EV market.
It's an exciting opportunity to invest in a new company and follow the growth story, but investors should bear in mind that Lucid's investment thesis could change for several factors inside and outside of its control. Lucid is a high-risk, high-reward play in the EV space. For that reason, it may be best to include Lucid in a basket of EV stocks instead of betting the farm on a single potential winner.