Tesla (TSLA 2.50%) now has a market cap well over $1 trillion. It's the biggest electric vehicle (EV) stock in the world. Much of that valuation is tied to the company's self-driving technology, a technology that is expected to fuel its robotaxi ambitions. Some experts believe robotaxis will eventually be a $10 trillion global opportunity.
Many investors are now looking for the next Tesla. Some believe they have found it with Lucid Group (LCID 6.74%), a $3 billion EV maker with big tech dreams. There's only one problem with Lucid's plan for EV domination. This flaw, in my eyes, makes the stock a sell over the long term.
NASDAQ: LCID
Key Data Points
Lucid Group can't compete with Tesla or Rivian on AI
Last year, Lucid's leadership team revealed that, long-term, the company won't just be an EV manufacturer. In fact, just 20% of sales are targeted to come from vehicle sales. The rest are expected to come from software sales. In a nutshell, Lucid wants to sell its technology to other automakers.
There's just one problem: I doubt that many automakers will seek the company's technology over the long term.
Image source: Getty Images.
The future of EVs and vehicles in general won't be entertainment systems, drivetrains, or luxury options. Instead, artificial intelligence (AI) will be key, as this technology is quickly becoming the primary force behind autonomous driving capabilities. Without AI, automakers will struggle to have competitive self-driving driving features.
AI innovation is a big reason why I'm very bullish on Rivian, another competitor that is investing heavily into the space. Tesla, of course, has plowed billions into AI in recent years, and will continue to do so in future years.
Lucid has big AI dreams, too. But its financial power to invest heavily is extremely limited given its diminutive market cap. Plus, it's arguably years behind both Tesla and Rivian when it comes to launching a vehicle with a price tag under $50,000. Cheaper vehicles allow EV makers to scale real-world production significantly. That means far more vehicles on the road generating real-world data, a critical tool for advancing a company's AI models.
With relatively limited financial firepower and a handicap when it comes to generating data to improve its AI capabilities, there isn't a clear path for Lucid to win at either AI or autonomous driving. Its best chance at survival, as its leadership has clearly acknowledged, is by supplying its own tech stack to automakers that haven't developed their own internal systems. There's steep competition here, too, however, with many autonomy start-ups already achieving valuations above Lucid.
Without a clear path toward AI or autonomous dominance, investors should remain very cautious in trusting Lucid with their capital over the long term.
