Share prices of Lucid Group (LCID +4.18%) and ChargePoint Holdings (CHPT +0.42%) are both down over 50% from their 52-week highs as widespread market volatility ripples through the electric vehicle (EV) industry.
Yet price action alone isn't a good enough reason to buy or sell a stock. Let's dive into the fundamentals of each company to determine if either is worth buying now.
Image source: Lucid Group.
Lucid has a clear path forward
Daniel Foelber (Lucid): In hindsight, it's easy to look at Lucid's stock chart and argue that investors got a little too excited about the electric automaker's growth potential. The company's peak market cap above $90 billion was excessive given that Lucid only began mass-producing cars in September and delivering them in October.
Thankfully, Lucid management continues to show that it knows how to lean into what the market gives it, whether that's by raising $4.4 billion when it went public with a special purpose acquisition company (SPAC) called Churchill Capital IV last July or through its senior debt offering. Lucid announced the senior debt offering around the time the U.S. Securities and Exchange Commission (SEC) probe was issued on Dec. 3.
In December, the stock market was roaring, and euphoria around fellow EV start-up Rivian Automotive (which had just had its initial public offering) was high. Lucid chose this time to raise $1.75 billion in cash from convertible senior notes due in 2026. The initial conversion rate is 18.2548 shares of common stock per $1,000 principal amount of notes, which translates to $54.78 per Lucid share. This represents around a 100% premium to the current price of Lucid stock. Lucid said it had enough cash from going public to fund its 2022 operations. The senior note gives Lucid some dry powder for 2023 as well.
NASDAQ: LCID
Key Data Points
In addition to its strong cash position, Lucid has set reasonable expectations for 2022. The electric car company believes it can deliver 20,000 Lucid Air sedans. Since it already had over 17,000 reservations as of the third quarter of 2021, advertising is one less thing Lucid should have to worry about this year.
Lucid reports its fourth-quarter and full-year 2021 results on Feb.28. Investors should keep their ears perked toward updated reservation numbers, delivery figures, guidance for 2022, the company's updated cash position, and its updated showroom and service center store count. Also, they need to see how the global chip shortage, supply chain challenges, and inflation are impacting its business.
2022 will be a big year for Lucid. It will have to prove it's worth the premium price Wall Street has awarded it. Falling short of promises would likely lead to further turbulence for Lucid stock. But given the company's incredibly impressive technology, adding Lucid to a basket of EV stocks could be a reasonable decision.
Owning the picks and shovels can spread the risk
Howard Smith (ChargePoint): There are many players in the EV charging network business. One thing that sets them apart from EV makers is that their success doesn't count on any single winning vehicle manufacturer. If the market for EVs grows anywhere near expected rates, there will be a boon in demand for charging capabilities.
That's one reason the recently signed infrastructure bill designates $7.5 billion to build out the domestic charging network. For investors, it makes sense to go with the leader when looking to gain exposure. ChargePoint has more than 163,000 activated charging stations. By comparison, competitors Blink Charging and EVgo had about 30,000 and 1,600, respectively, as of recent updates.
Investing in charging networks is a type of picks-and-shovels play as a service to the EV sector. That helps to spread the risk in what is already a highly valued and risky sector. While having massive potential, Lucid is already valued with a market cap of about $50 billion. That's before it has even experienced a full quarter of manufacturing its vehicles. It has yet to prove it can manufacture at scale and become profitable.
NYSE: CHPT
Key Data Points
ChargePoint also has much to prove. But it is investing in building out its network so it can turn a profit from the software and subscription services it offers. Those investments are coming as the established leader in North America, with an expanding presence in Europe.
Unlike many EV companies that have gone public via a SPAC merger, ChargePoint has also exceeded its original revenue guidance for its first fiscal year as a public company. Management originally told investors to expect just under $200 million in calendar year 2021. Its latest guidance bumped that up to a range of $235 million to $240 million.
The company will report its final results on March 2, when investors can also look toward the company's growth estimates for its current fiscal year. If the growth trajectory remains strong, investors will likely gain more confidence for an investment in ChargePoint.
A laddered approach
Lucid and ChargePoint both have big reports coming up on Feb. 28 and March 2, respectively. While past results are important, all eyes will be on each company's guidance for the year ahead.
For some investors, simply waiting to see how each company is responding to inflation and supply chain issues and digesting updated expectations, could be a more conservative path forward instead of opening a position now. For others, it could be the perfect time to deploy the classic strategy of "buying in thirds."
Buying in thirds involves determining the total amount of shares of a stock you want to own and then staging in the buying process to not prematurely overweight a position. It's a good strategy for getting some skin in the game without overly exposing yourself to short-term volatility.
