Several electric vehicle (EV)-related companies went public in 2021 through mergers with special purpose acquisition companies (SPACs).

But many of those same EV stocks have seen their prices crash in recent months as rising interest rates drive investors away from speculative investments not yet operating at a profit. Supply chain challenges and chip shortages have also contributed to the drop in enthusiasm for these companies, many of which had been richly valued. These were valuations based on their reservations and long-term forecasts, instead of actual revenue or profits.

However, one EV stock that survived the broader sell-off was Lucid Group (NASDAQ:LCID), which has seen its stock nearly double in value over the past three months. Investors remained optimistic about Lucid for three simple reasons.

Lucid's Air sedan.

Image source: Lucid.

First, Lucid's CEO and CTO Peter Rawlinson previously oversaw the development of Tesla's (NASDAQ:TSLA) Model S sedan as its chief vehicle engineer from 2009 to 2012. Second, its Lucid Air sedan can travel up to 520 miles on a single charge, beating the Tesla's Model S Long Range by over 100 miles. Third, it already started shipping its first vehicles last October, and its number of reservations continues to rise.

Lucid believes it can generate approximately $2.2 billion in revenue this year by shipping 20,000 vehicles. But with a market cap of nearly $75 billion, Lucid's stock is already priced for perfection at 34 times that sales estimate. Can Lucid actually grow into its frothy valuation over the next 10 years? Let's review its long-term ambitions to find out.

2022-2024: Growing pains and eventual profits

Lucid's AMP-1 manufacturing plant in Arizona has an annual production capacity of 34,000 vehicles. It expects AMP-1's Phase 2 expansion, which recently started, to increase that capacity to 90,000 vehicles in 2023.

Lucid only started to ship its first batch of 520 customized "Dream" Air sedans last October. But last November, it said its number of reservations had surpassed 17,000, up from 13,000 at the end of September. That big jump indicates it can hit its target of 20,000 shipments in 2022, as long as it secures enough components and avoids any production bottlenecks.

But that's easier said than done when the world's top automakers are still struggling with chip shortages and supply chain issues. Tesla sidestepped those problems last year by rewriting its vehicle software for alternative chips, but other smaller EV makers -- like the electric pickup, SUV, and delivery van maker Rivian (NASDAQ:RIVN) -- struggled to overcome those supply chain challenges.

Lucid also plans to continue its international expansion, which kicked off in Canada in late 2021. It will expand into Europe and the EMEA (Europe, Middle East, and Africa) region this year, then enter China -- which is already heavily saturated with domestic and foreign EV makers -- in 2023. It also intends to launch its first SUV, the Lucid Gravity, that same year.

That expansion will be very difficult for an unprofitable company to pull off. Lucid increased its cash reserves to nearly $7 billion following a convertible debt offering of more than $1.75 billion in December, but it also posted a net loss of $1.5 billion ($3.7 billion after including the issuance of $2.2 billion in preferred convertible stock) in the first nine months of 2021.

Therefore, investors should expect Lucid to remain unprofitable as its debt levels climb over the next few years. But that isn't surprising, since Tesla also endured the same growing pains over the past decade.

Lucid will incur its biggest expenses throughout 2022 and 2023. But after it reins in its initial spending, Lucid believes it will turn profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in 2024, and that its free cash flow (FCF) will turn positive in 2025.

2025 to 2030: Its evolution into the "next Tesla"

In 2025, Lucid expects to generate nearly $14 billion in revenue by delivering approximately 135,000 vehicles, including 42,000 Air sedans, 86,000 Gravity SUVs, and 7,000 to 8,000 units of a brand new model.

In 2026, Lucid expects to generate $22.8 billion in revenue by delivering about 251,000 vehicles, including 42,000 sedans, 134,000 SUVs, and 75,000 new models. It expects its annual shipments to nearly double to 500,000 by 2030.

That growth trajectory would be comparable to Tesla's. Tesla's annual shipments rose from 22,477 vehicles in 2013 to 499,550 vehicles in 2020. If Lucid can replicate that growth, it could easily grow into its valuations and generate massive multibagger gains for its investors.

However, Tesla also enjoyed a first-mover's advantage in the EV market, and it expanded its mainstream appeal by gradually rolling out lower-priced models. Lucid is entering the saturated EV market at a much higher price point than Tesla, so its total addressable market could actually be much smaller.

Where will Lucid be in 10 years?

If Lucid hits its ambitious growth targets for 2030, it will likely continue to expand over the following years and carve out a defensible niche in high-end luxury EVs. But if it fails to achieve those goals, it could easily collapse under the weight of its rising debt and sky-high valuations.

Therefore, investors should still view Lucid as a highly speculative EV stock that trades on reservations instead of actual shipments and revenue.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.