With shares down by around 89% over the last three years, Lucid Motors (LCID 3.44%) has been a bad bet for its early shareholders. That said, its low price tag is sure to attract the attention of bargain hunters betting on a rebound. Will the company's future be brighter than its past? Let's discuss how changing regulations and industry dynamics could influence Lucid's stock performance over the next three years and beyond.
NASDAQ: LCID
Key Data Points
The "big, beautiful bill" is a disaster for EVs
While early drafts of President Donald Trump's "big, beautiful bill" suggested it might retain the Biden-era $7,500 electric vehicle (EV) tax credit for smaller companies, the final legislation totally axed this incentive. This is a big challenge for the automotive industry because, according to Kelley Blue Book, the average cost of an EV is roughly $9,000 more than that of a gasoline-powered car.
The withdrawal of government support will hurt Lucid's effort to pivot to mass-market SUVs, such as the Lucid Earth, which is expected to start at just $48,000 when it launches in 2027. Furthermore, the loosening of emissions regulations could hurt the market for regulatory credits. In the first quarter, Lucid earned $31.5 million by selling these tradable permits to other automakers that fell short of emissions standards.
That said, Lucid is less exposed to the changing regulatory environment than many of its rivals. With a starting price of $69,900, Lucid's flagship Air Sedan was already too expensive to qualify for the full $7,500 tax credit. Furthermore, many of its clients exceed the program's income threshold of $150,000 for a single filer and $300,000 for joint returns.
Politics could also be an opportunity
As a domestic American automaker, Lucid can benefit from the Trump administration's protectionist trade policies. These include new incentives for building domestic manufacturing facilities, and the ability for people to deduct interest expense if they purchase new cars made in the U.S. Most importantly, Lucid stands to gain from the 25% tariff currently imposed on imported vehicles and certain auto parts.
The massive tariff could effectively shut down Lucid's high-end European rivals like Mercedes-Benz, Porsche, and BMW. Lucid has little reason to fear retaliation, because of its small presence on the continent. It sold just 28 vehicles there in May (the European Union already has a 10% tariff on American passenger cars, along with various fees and taxes).
Image source: Getty Images.
The U.S. market will be more complicated. The new U.S. tariff will hurt domestic rivals like Ford and General Motors, which have extensively integrated their supply chains with Canada and Mexico. But Lucid still has to contend with Tesla, which has a particularly U.S.-centric supply chain. Tesla also benefits from economies of scale, which will make it difficult for a smaller company like Lucid to compete based on price.
However, Tesla CEO Elon Musk's political involvement has severely hurt its brand, with deliveries falling 13.5% in the second quarter. This weakness creates an opportunity for Lucid to position itself as a politically neutral alternative to its rival and potentially take market share.
What will the next three years have in store?
Over the next three years, Lucid must navigate an uncertain (but potentially favorable) regulatory climate while rolling out new SUV models and trying to take market share from Tesla. Analysts are optimistic, with a consensus projection of revenue growth of around 72% this year and 97% next year. With a price-to-sales (P/S) of just 7, the stock's valuation looks attractive compared to Tesla's P/S of 11 -- and it might be time to buy.
