Lucid Motors (NASDAQ:LCID) is an electrical autos maker, with a powerful concentrate on serving the posh client. The corporate’s flagship automobile, the Lucid Air, has obtained constructive evaluations for its efficiency and know-how. Reflecting on the rising demand for electrical autos, paired with strong fundamentals, I view Lucid as a lovely funding alternative. Personally, I worth Lucid shares at a base-case goal value of $9.32/share (roughly 19% upside), primarily based on 2030 deliveries equal to 200,000, a median gross sales value per automotive of $110,000, and a ten% internet revenue margin.
For reference, LCID inventory is down nearly 80% for the previous twelve months, as in comparison with a lack of about 11% for the S&P 500 (SPY).
About Lucid Group
Lucid Motors is an American electrical automobile producer based in 2007 and primarily based in Newark, California. The firm makes a speciality of creating luxurious electrical automobiles and has solely not too long ago began delivering its first manufacturing automobile to clients (2021), the Lucid Air. The Air is a luxurious sedan that gives a mixture of efficiency, vary, and know-how, making it a powerful Tesla (TSLA) contender within the EV market, in my view. Lucid Air presents a spread of as much as 517 miles on a single cost, making it the longest-range electrical automotive presently in the marketplace. The Air additionally boasts a high velocity of 168 mph and might speed up from 0 to 60 mph in simply 2.5 seconds.
As of Q3 2022, Lucid has delivered 1,398 autos to clients as in comparison with a manufacturing of solely 2,282. Nevertheless, the corporate boasts over 32,000 reservations, with a possible gross sales pipeline of greater than $3.2 billion. Though Lucid Motors has but to show a revenue, given heavy investments in R&D and manufacturing in addition to provide chain infrastructure, the corporate has a strong monetary place and is well-positioned to scale up manufacturing of the Air and increase the corporate’s product portfolio. As of Q3 2022, Lucid reported $3.34 billion of money and money equivalents on the stability sheet and a internet money place of roughly $1 billion. Notably, the September quarter stability sheet doesn’t but account for the $1.5 billion raised in late 2022.
Lucid Motors enjoys the help of an exceptionally sturdy investor group. The corporate’s largest investor is the Saudi Public Funding Fund, which invested about $1 billion within the firm in 2018 and one other $915 million in late 2022. Different notable traders in Lucid Motors include, amongst others:
- Michael Klein, a financier and founding father of M. Klein and Firm
- LeEco, a Chinese language know-how firm
- Venrock, a enterprise capital agency
- T. Rowe Worth, an funding administration agency
- Constancy Administration & Analysis Firm, an funding administration firm
- China Environmental Fund, a Chinese language funding fund
- China Improvement Financial institution, a Chinese language state-owned growth finance establishment
- Samsung Ventures, the enterprise capital arm of Samsung Group.
EV Market Alternative
With many EV makers promoting off sharply, together with Lucid, Tesla, NIO (NIO), XPeng (XPEV), and Rivian (RIVN), the marketplace for electrical autos has most actually misplaced plenty of its post-covid enchantment. Nevertheless, the change of sentiment doesn’t essentially change the market thesis: In truth, the EV market is predicted to develop considerably within the coming years, pushed by rising client demand for sustainable transportation and authorities rules to scale back carbon emissions. In accordance with a report by Priority Analysis, the worldwide EV market is projected to succeed in $417.35 billion by 2030, rising at a CAGR of near 35% from 2021 to 2030.
For my part, Lucid is well-positioned to benefit from this development, given the corporate’s sturdy model picture and know-how backdrop. Furthermore, Lucid can be enticing given the corporate’s premium business positioning: Lucid’s luxurious EV choices goal the high-end client of the market, that are much less price-sensitive and extra prepared to pay for premium options. Moreover, the corporate’s concentrate on vary and efficiency is predicted to draw customers who’re searching for electrical automobiles that may compete with conventional gasoline-powered autos.
Estimating Lucid’s 2030 Potential and Valuation
Now an important query: what could be an affordable valuation anchor for LCID? Indisputably, completely different analysts will worth LCID in a different way, and value goal will differ considerably. However right here is how I’d strategy the duty.
First, I wish to acknowledge that LCID is a high-growth firm. And accordingly, I wish to base my evaluation not on present numbers, however on what I imagine may very well be achieved in 2030. That stated, for the base-case, I anchor my valuation on an estimated 200,000 automotive gross sales in 2030, and a median gross sales value per automotive of $110,000. Moreover, I assume a internet revenue margin of solely 10%. Notably, that is beneath each Tesla’s 2022 net profit margin of 15% and Porsche’s 2022 net profit margin of near 14%. Thus, in my view, 10% is a really affordable assumption if one considers elevated economies of scale. (Word that I count on gross sales quantity to be nearly 10x.)
Personally, I imagine 200,000 automobiles offered isn’t unreasonable, given Lucid’s know-how benefit within the EV market and energy of name. It’s about one-third decrease than what Porsche is currently promoting. Nevertheless, readers ought to be happy to problem my assumption – see sensitivity desk beneath.
Primarily based on this, I calculate a $2.2 billion annuity, with a 2030 current worth equal to $31.4 billion. This quantity discounted again to early 2023, assuming a ten% fee and including a $998 million billion of net cash, provides an fairness worth of $15.7 billion, or $9.32/share.
What if we differ the web profitability margin and variety of automotive gross sales? I’ve enclosed a sensitivity desk that exhibits the results of completely different combos. For reference, pink cells present upside as in comparison with LCID’s present valuation, and inexperienced cells present upside.
- Upside case $18.92/share
- Draw back case $2.34/share
Lucid traders ought to most actually monitor the aggressive surroundings out there for EVs, as main carmakers are already beginning to cut costs. Furthermore, traders ought to think about that sentiment in direction of danger belongings (particularly EV shares) stays depressed. And given a number of macroeconomic headwinds, LCID inventory might undergo from share value volatility though the corporate’s fundamentals stay unchanged.
In conclusion, Lucid Motors is an organization with a product providing, a big market alternative, and a strong monetary place. The corporate’s concentrate on luxurious electrical autos, vary, and efficiency, is predicted to draw customers searching for premium electrical automobiles. Furthermore, I argue that Lucid’s sturdy investor base, notably the Public Funding Fund of Saudi Arabia, provides the corporate a wonderful help backdrop to push for manufacturing ramp-up and enterprise development. Personally, I worth Lucid shares at a base-case goal value of $9.32/share (roughly 19% upside). My argument relies on 2030 deliveries equal to 200,000, a median gross sales value per automotive of $110,000 and a ten% internet revenue margin.