Lucid Group (LCID -3.11%) stock soared 40% in value when the company announced its robotaxi partnership with Uber Technologies last month. The deal is transformative, with Uber agreeing to purchase 20,000 vehicles from Lucid as well as infuse $300 million in fresh cash into the business.
While not all Wall Street analysts loved the move, many were exuberant. In early August, several experts reiterated their price targets for Lucid stock, expecting anywhere between 45% and 240% in potential upside. Why the optimism? Analysts are likely excited about one key pillar of growth.
Lucid Group is getting ready to transform its business model
Manufacturing vehicles, like Lucid currently does, is capital intensive. On the other hand, Uber operates a capital-light business. The ride-hailing company typically doesn't need to own the millions of vehicles it needs to operate its network. Most of its business is simply the software that connects cars that other people already own and pay for. Lucid, meanwhile, needs to manufacture new cars to generate new revenue -- requiring a never-ending stream of fresh capital.
All of this could change for Lucid over the next few years. Earlier this year, Lucid's former CEO stressed that he would like the business to generate just 20% of sales from manufacturing, with the other 80% stemming from technology licensing. Licensing requires less capital to generate new sales, and can thus generate higher margins.
Image source: Getty Images.
While Lucid is delivering 20,000 vehicles to Uber as part of its robotaxi partnership, the sharing of technology is arguably the biggest reason for optimism. The deal is a huge vote of confidence that other major transportation players are willing to pay big money for Lucid's technology stack.
Lucid's pivot from a manufacturing business to a technology supplier should have investors and analysts excited about the years ahead.
