The market has turned negative for many high-growth stocks in 2022. After huge run-ups in 2020 and early 2021, investors have sold off speculative technology investments. This is evident when looking at the price of a lot of electric vehicle (EV) stocks, many of which are down 50% or more this year. Lucid Group (LCID -1.16%) is among these losers, down 49% so far in 2022 after being one of the most valuable automakers in the world after its public debut in 2021.
Drawdowns are a tough pill to swallow but can provide buying opportunities with shares trading at a discount. Is Lucid Group stock a buy? Let's take a look.
What is Lucid Group?
Lucid Group is an upscale EV manufacturer that is trying to bring a true luxury electrified car to market. Its vehicles cost anywhere between $100k-$250k per car and come with a great range of 500+ miles on a single charge (for comparison, the Tesla Model S has a range of 396 miles) with only 20 minutes to charge. In fact, even though its cars are barely starting to come off the manufacturing line, the Lucid Air was named the MotorTrend 2022 Car of the Year, one of the highest honors in the automobile industry.
With a target market for the affluent 1% of the world, Lucid Group is not looking to become one of the largest carmakers in the world like its competitor Tesla. Instead, it is focused on serving the pricier end of the industry. As of the end of 2021, the company had 25k reservations for its vehicles, which equates to approximately $2.4 billion in future revenue.
The company is barely a start-up
While Lucid Group has gotten a lot of buzz, investors should know that the company is still in its very early stages. In 2021, it only delivered 125 vehicles to customers as its manufacturing just became fully operational. In 2022, it expects to produce 12k-14k vehicles, which will be a big step up in scale and fulfill almost half of its 25k in reservations. After it burns through its reservation book, it needs to hope luxury car buyers embrace the electrification of the industry so it can maintain demand for its products.
After raising money through a merger with a special purpose acquisition company (SPAC) and issuing $2 billion in new green convertible bonds, Lucid Group has $6.3 billion in cash on its balance sheet. That should give it a runway of a few years to scale its manufacturing to break-even profitability. But as we've seen with Tesla over the last decade, it takes a lot of scale and a lot of capital investment to bring an automotive business to generate consistent profits. Lucid Group should have an easier time than most because of its focus on luxury cars, but it will be a long process nonetheless.
Stay away from speculative investments at high prices
The Lucid story is exciting, and you might think it is time to buy the dip with the stock down around 50% just this year. But make no mistake, this is still a highly speculative investment at a nosebleed price. In 2021, Lucid Group had an operating loss of $1.5 billion on revenue of just $27 million. If it can hit its production targets for 2022 and the majority of those cars get delivered, revenue will jump to slightly over $1 billion this year. At a market cap of $32 billion, that gives the stock a forward price-to-sales ratio (P/S) of 32. A traditional car manufacturer like Toyota has a P/S of around 1, meaning that Lucid Group is valued at 32 times the average automaker right now. Investors are pricing in a lot of growth, that's for sure. There are also huge operating losses that need to get fixed within a few years.
Lucid Group could be a viable business someday, and it may even end up being one of the top EV brands in the world. But that does not mean you should buy the stock.