Since going public in 2021, Lucid Group (LCID 6.33%) has seen its stock struggle mightily, losing more than 80% of its value in that time period. After the steep decline, however, shares of the electric vehicle (EV) maker trade at a much lower valuation. Over the next few years, sales should grow tremendously. In 2025 alone, analysts expect the company to nearly double its revenue.
This looks like a great time to buy into an exciting growth stock at a discount. However, there are two risks you'll want to monitor before jumping in.
NASDAQ: LCID
Key Data Points
The next three years will be wild for Lucid Group
Starting out as an electric vehicle maker is extremely difficult. Scores have gone bankrupt over the decades. The main issue has been funding. To start a car manufacturer from scratch, billions of dollars need to be invested over many years. Profitability can take a decade or longer to achieve. The trick isn't necessarily to produce great vehicles that consumers love -- it's to survive financially until scaling becomes possible.
Tesla's historic rise was due to a very particular strategy for growth. The company first created a sports car, the Roadster, which had a high price point affordable only to the very rich. This lowered production costs since volumes would be limited. It lowered the concern for cost control, given that the price points would be very high anyway. It also ensured that its cars would be viewed as luxury items.
From there, Tesla was able to leverage its reputation to build more affordable cars like the Model X and Model S. Then, it could reinvest its growing sales base into even more affordable vehicles, like the Model Y and Model 3. Today, more than 90% of Tesla's vehicle sales are dominated by affordable options like the Model Y and 3. However, the process of getting to this scale was gradual and strategic.
Over the next three years, Lucid will attempt to replicate Tesla's massive growth. Right now, the company only has two vehicles in its lineup: the Lucid Air and the Lucid Gravity. The Gravity is a recent introduction, and sales of the SUV are expected to help revenue growth surpass 75% in 2025.
But the most exciting new models will be revealed in 2026 and 2027. Unlike the Air and Gravity models, both of which can cost upwards of $100,000 depending on options, Lucid's future models are expected to debut under $50,000. Crossing that critical threshold helped Tesla's growth go into overdrive. Lucid's management team anticipates the same for its new mass-market models.
So, this year expect Lucid's sales growth to spike heavily thanks to Gravity's sales ramp. Due to new mass-market models, there's a chance this breakneck sales growth pace can be sustained for several years to come. But there are two risks to this story that every Lucid investor should monitor.
Image source: Getty Images.
Make sure to monitor these two risks
If Lucid can continue ramping Gravity sales this year and successfully introduce three new mass-market models in 2026 and 2027 as management expects, the company's sales growth should far exceed most investors' expectations. But the road forward won't be easy. The company's longtime CEO recently departed, and the firm has far less cash on hand than competitors like Rivian Automotive and Tesla. Plus, Lucid loses far more on each vehicle sale than those two competitors.
TSLA Gross Profit Margin data by YCharts
To get its new vehicles to market, Lucid will need a lot more cash. That will require raising new debt, or, more likely, selling more stock, diluting shareholders in the process. There's no guarantee that the market will be willing to finance this new funding on terms attractive to current shareholders. And like the long list of defunct EV makers attests, there's no guarantee that this funding will come through at all.
Lucid shares are cheap compared to their growth potential over the next three years. But gross margin and liquidity concerns should be closely monitored.
