Despite rallying roughly 16% year to date, Lucid (LCID -0.79%) stock is still down massively from its high. The luxury electric vehicle (EV) specialist's share price has fallen 62% over the last year and trades off approximately 86% from the valuation peak that it reached in February 2021.

Should investors be betting on continued recovery for the beaten-down EV stock, or is the auto upstart on track to get left in the dust? Read on to see why two fool.com contributors come down on opposite sides of the bull versus bear debate surrounding Lucid. 

A Lucid Air vehicle.

Image source: Lucid.

Bear: Lucid has a challenging few years ahead

Parkev Tatevosian: My bear case for Lucid stock centers on the incredible riskiness of investing in an electric vehicle start-up amid rising competition in the industry. Admittedly, Lucid is experiencing exponential growth as it ramps up the production of award-winning EVs. Sales exploded from $27 million in 2021 to $608 million in 2022. However, investors must be careful not to expect that growth rate indefinitely.

Indeed, in an investor update, Lucid said it produced 2,314 cars in the first quarter but delivered only 1,406. In recent months, management has changed its tone from discussing production capacity as its primary constraint to consumer demand as the more significant roadblock. Though Lucid says it has 28,000 reservations for its cars, those orders are not turning into sales at the desired rate. That could be for many reasons, including the ease with which people can make a reservation. 

Regardless, selling luxury electric vehicles is only getting harder as competitors lower prices and increase production. To make matters worse, the Federal Reserve's aggressive interest rate rising campaign has slowed economic growth. That's troubling for Lucid because, at $608 million in sales in 2022, the company generated $2.6 billion in operating losses. To become profitable, Lucid might need to increase sales by four or five times its 2022 rate. That feat might take several years, with no guarantee it will be achieved.

Bull: Lucid still has avenues to delivering big returns

Keith Noonan: As my colleague noted above, the company's recent update on production and delivery numbers does not look great. More succinctly, the delivery numbers were bad. Extrapolated out, the company's production of 2,314 vehicles in the first quarter would have it falling short of its target of between 10,000 and 14,000 vehicles produced this year, and delivery numbers in Q1 reflect that demand is under pressure.

On the other hand, the EV specialist is producing highly rated vehicles in the luxury EV category -- even if the near-term outlook for this niche corner of the auto industry is facing headwinds. The Lucid Air won MotorTrend's 2022 Car of the Year award, and it also won "Luxury Car of the Year" at the 2023 World Car Awards. Lucid is still a young auto company with opportunities to build brand strength and lay the foundations for long-term demand growth.

While the company continues to rack up substantial losses, it ended last year with $4.9 billion in total liquidity, and it should be able to raise additional funding through new share offerings if needed. If Lucid can survive a rough patch and emerge to capitalize on more favorable macroeconomic conditions and reinvigorated momentum for the EV market at large, it could go on to significantly outperform the market's current expectations. 

Additionally, Lucid has very high levels of institutional support from Saudi Arabia's Public Investment Fund (PIF) and could get a full buyout. The Saudi PIF currently owns more than 60% of Lucid, which already represents a high vote of confidence, and the institutional connection could help raise additional capital or ultimately be followed by a total buyout. The potential for a full acquisition could help to create a floor for Lucid's valuation, and it also opens the door for it to be acquired at a price that's significantly above the current stock level.

Should you buy Lucid stock?

Given its elevated risk profile and uncertain business outlook, Lucid stock probably isn't a great portfolio fit for many investors. The current macroeconomic backdrop is generally unfavorable for automotive companies and growth-dependent stocks, and the EV specialist is years away from profitability even if demand and production trends improve. 

In light of macro trends, pressures for the business and the auto industry at large, and a valuation that still prices in some strong business performance, Lucid stock only looks like a suitable buy for investors who are willing to take on big risk in pursuit of potentially explosive returns. For those looking for contrarian plays as smaller EV growth stocks face some intense headwinds, Lucid stock could be a worthwhile gamble capable of delivering huge gains, but it's undoubtedly a speculative investment.