When a bear hugs you, you get hurt. It doesn’t matter how strong you are, you will find it difficult to breathe. Electric vehicle maker Lucid Group (NASDAQ: LCID) discovered that in 2022. The California-based technology and automotive company engaged in the designing, engineering, and building of electric vehicles, EV powertrains, and battery systems, has lost over 52% in 2022. It closed at $20.18 on May 31 after reaching an all-time high of $57.75 in November 2021.
Long term EV outlook is solid
Even though the EV industry might be facing some short-term headwinds due to the Russia-Ukraine war and related macro-economic conditions, the long-term outlook of this industry is solid. The rising levels of people's concern for the environment and the push towards reduction of dependency on fossil fuels will drive demand for EV vehicles.
Lucid has a hefty cash reserve of $5.4 billion to take advantage of this secular shift in consumer demand and is in a perfect position to finance its growth for the next 12 to 18 months.
The company’s Project Gravity SUV is due for production in 2024. In its new Saudi Arabia factory, Lucid Motors will be able to produce up to 155,000 units. Further, Lucid Motors has also agreed to supply up to 100,000 vehicles to the government of Saudi Arabia through 2030, thereby adding more to its long-term revenue visibility. Additionally, aggressive expansion plans across the European region are also on the cards.
Lucid Motors will be impacted by adverse macroeconomic conditions
The EV market is facing several headwinds right now. These problems don’t look like they are going to subside anytime soon. There are stagflation worries for 2023, which could affect demand for premium EVs like Lucid’s luxury sedan that the company intends to launch later this year.
Lucid Motors has already lowered its production guidance for the current year from 14,000 vehicles to 12,000 vehicles. The market estimates that production and delivery guidance for 2023 might be lower than expected.
The company expected to generate positive free cash flows by 2025 but it seems the cash flows might remain negative beyond 2025 as well. Cash flows are one of the biggest determinants of valuation. It’s not a surprise that the company’s stock has been trading at such a low level.
What next for LCID stock?
Despite being in its early stages of growth, Q1 of 2022 saw the company generate revenue of $57.5 million along with customer reservations of more than 30,000 a day. This level was achieved despite the slow output of vehicles during the quarter.
High reservation numbers indicate the market is optimistic about its products and is looking forward to buying them. Its cash in hand of $5.4 billion also eases some fears. The decision to increase the price levels of some of its EV models might also cast a positive impact on its cash flows in the coming times.
Analysts have an average price target of $29.98 on Lucid stock. That’s a potential upside of over 48%. The EV market is an extremely competitive one and Lucid with its constant focus on innovation is in a perfect position to drive its way up as a leading player in the market. The international expansions have further increased the stock’s attractiveness. Short-term challenges like raw material shortage, chip shortage, or the danger of a global recession might exist, but the long-term prospects of the stock remain robust.