After Polestar (NASDAQ: PSNY) concluded its merger with SPAC the previous day, the shares of the electric-vehicle producer surged by 14 percent. LCID is down 0.47 percent on the news.
There is no direct competition for Lucid (ticker: LCID). Polestar (PSNY) builds the $48,000 all-electric Polestar 2, which competes with Tesla’s (TSLA) Model 3 (TSLA +4.52 percent). While Tesla’s Model S Plaid may cost up to $155,000, Lucid’s $170,000 Air Dream Edition is even more expensive.
The problem is that Polestar’s valuation of Lucid stock makes it seem overpriced. With 2.1 billion shares in circulation, Polestar has a market value of $26 billion. Polestar’s expected 2023 revenues of $6.6 billion are valued at 3.9 times that amount.
The price of Lucid, which is valued at over $29 billion, is more than eight times the $3.5 billion in revenues expected in 2023. In comparison to XPeng (XPEV), NIO (NIO +4.47%), Li Auto (LI +3.95%), and Rivian Automotive (RIVN +0.10%), who all have sales but no free cash flow, that’s costly. All of these EV startups trade for roughly 2.6 times projected sales in the year 2023.
Why is Lucid so much more costly than other options? It’s safe to say that the main deciding factor is Saudi ownership. Investors may assume that the Saudi Public Investment Support, which owns 61 percent of Lucid shares, would continue to fund the company indefinitely. The LIV golf breakaway tour, which has been accused of introducing “irrational rivalry” to golf, was funded by Saudi Arabia in the past.
Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management, calls Lucid “the LIV tour for EVs.” I don’t think it can and won’t be profitable.
He’s got a good point. Companies like Tesla are focusing on more affordable automobiles since the market for ultra-expensive cars (whether regular or electric) is minimal. Model X and S cars made up around 25,000 of Tesla’s total sales in 2021; the more economical Model 3 and Y models made up the rest. For “sentimental reasons,” Tesla CEO, Elon Musk remarked, the business continues to produce the X and S electric vehicles.
Lucid, which has sold around 500 vehicles in the previous two quarters and is scheduled to sell approximately 13,000 in 2022, faces a fundamental risk that sales could plateau or drop as the high end of the EV market becomes crowded. There’s no good news for Lucid’s multiples in this situation.
Rallying stocks are real. It’s still a bear market.
NIO is a shining example of this. Currently, the stock is trading at 2.4 times 2023 sales, which is a 47% drop from 8 times in early 2021. In part, this is due to China’s economic woes, but a large part of it is related to the slowdown in volume growth that’s occurred recently. In Wedbush analyst Dan Ives’ estimations, “the multiple was shattered as the growth slowed sharply. It’s a cautionary story for the EV industry to learn from NIO.
On 2023 sales predictions, Lucid’s stock may collapse to $7, down 64% from its Friday closing price of $19.21. Even though the company has already plunged 73% from its 52-week high of roughly $58.
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