Shares of electric car upstart Lucid (LCID) lit up on Tuesday, surging 9% in response to a what was actually a pretty even-keeled report by Charles Coldicott at UK research shop Redburn. Coldicott initiated coverage of Lucid Group with a “neutral” rating and a price target of only $39, but by the time trading was done for the day, Lucid stock had topped $45 a share.
Why did investors have such an enthusiastic reaction to what was essentially a “hold” rating on the stock? Well, let’s take a look.
To begin with, Coldicott started out his note with a rather bold prediction: That “the global electric vehicle market could grow up to 10x by 2030.”
And Coldicott didn’t stop there.
Proceeding to lay out the case for Lucid, he noted that Lucid’s Air sedan “is the longest range EV” already, possesses advantages “even ahead of Tesla in certain fields.” In particular, the analyst believes that Lucid’s “market-leading drive unit and battery” could eventually “unlock the route to a mass-market, affordable EV.”
Success is not assured, however — and Coldicott sees caveats about Lucid that prevent him from wholeheartedly endorsing the stock. “Operational risks are huge” for one thing, as the company attempts to scale up its production capacity to meet demand. But demand isn’t a problem for Lucid. Instead, “production [is the] limiting factor.” And of course, expanding production requires cash. In that regard, Coldicott notes that Lucid’s finances currently look “stretched,” and the company “will need to raise a further $4.0bn.”
Nevertheless, assuming Lucid can survive its growing pains, the analyst sees a bright future for this car company. With production ramping up already, Coldicott predicts Lucid will produce and deliver in excess of 25,000 electric cars this year… then more than double production to 61,000 units in 2023… then grow another 50% to 94,000 units in 2024… then triple its production over the next three years, to the point where it’s delivering in excess of 300,000 EVs per year by 2027.
As more and more cars are sold, the analyst forecasts revenues approaching $2.9 billion this year, doubling to nearly $6.3 billion in 2023, $9.9 billion in 2024, and eventually hitting $19.5 billion in 2027.
Of course, sales and revenues are great — but what about profits, you ask? Sadly, Lucid investors will have to wait a bit longer for those. According to Coldicott, Lucid won’t book its first profit before 2026. It will, however, triple that first profit in 2027, earning $0.48 per share.
Granted, even assuming he’s right about that, this would mean that at Lucid’s closing price Tuesday, the stock is trading for 95 times earnings that it won’t earn for another five years. So no wonder he hesitates to actually call Lucid a “buy.”
And of course, Lucid might not even earn those profits then. Remember — we’re peering deep into the future here right now, and as Yogi Berra wisely said: “It’s tough to make predictions, especially about the future.”
All in all, the Street is currently taking a cautious approach to Lucid. The Hold consensus rating breaks down into 2 Buys, 3 Holds and 1 Sell. The bears have the edge, as the average price target comes in at $41.20 and implies potential downside of 9.5%. (See LCID stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.