After being in the consolidation phase for a long time, Lucid (NASDAQ:LCID) the stock had a strong rally in the fourth quarter of 2021. LCID stock jumped 89% between October 27 and the end of 2021.
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The catalyst for the rally was the company that delivered its first electric vehicle (EV), Lucid Air. Investors applauded the company’s ability to deliver as promised. Moreover, the vehicle seems superior to other electric vehicles in terms of technology.
However, LCID stock lost some strength after the United States Securities and Exchange Commission issued a subpoena (December 3, 2021) to investigate the projections and statements made by the company at the time of its merger. However, Lucid is unlikely to face any major challenges with the SEC probe as he has remained on track with his deliverables.
On a positive note, the company has not seen any major sales even after the lock-up period expired (January 19, 2022) for 74% of its outstanding shares by traditional investors.
Given that LCID stock is still hovering around the same level as at the end of December 2021, it reflects optimism and shows traditional investors’ decision to stay invested. The title should rebound on any positive development.
At current levels, this looks like a good investment opportunity from a long-term perspective. Here’s a closer look at Lucid’s actions moving forward.
Industry tailwinds support LCID stock growth
According to a study by Allied Market, the global market for electric vehicles is expected to reach $802.81 billion by 2027. Governments in all regions are encouraging the deployment of electric vehicles to reduce greenhouse gas emissions caused by internal combustion engine (ICE) vehicles.
Several government incentives, including the deduction on interest paid on loans, tax credits for electric vehicles and incentives for the use of plug-in electric vehicles, are believed to generate huge long-term opportunities.
In December 2021, the U.S. Environmental Protection Agency (EPA) set tougher fuel economy standards for cars and light trucks of 40 miles per gallon starting in 2026 and beyond. These regulations will support the growth of electric vehicle sales.
Even as competition intensifies, industry tailwinds are reason to be bullish on LCID stock.
Lucid’s initial backlog looks encouraging
In Q3 2021, management disclosed customer reservation of over 13,000 units, implying a backlog of $1.3 billion. Customer reservations increased further to 17,000 units as of November 15, 2021. Given an increase in demand, Lucid could meet its optimistic forecast.
Management aims to gradually expand by delivering 20,000 EV units by the end of 2022 and 49,000 units by 2023. Additionally, Lucid plans to deliver 251,000 EVs by 2026. With good prospects for shipments, revenue is expected to grow at a CAGR of 79% through 2026.
What makes this electric vehicle special are its transmission and battery technologies. The Lucid Air Dream Edition has the longest battery life in the industry. A single charge can achieve a range of 520 miles, according to the EPA.
It’s even better than from Tesla (NASDAQ:TSLA) Model S which has a range of 412 miles. The Lucid Air Dream Edition R also received the most prestigious title of “2022 MotorTrend Car of the Year” in the first year of production.
Also, the company plans to release three new car models in the next few years. This includes the EV Grand Touring, Touring and Air Pure models, which are expected to increase deliveries further. In the long term, management aims to roll out low-cost electric vehicles to the masses. This will likely help drive the addressable market and global market share.
Lucid: increased production capacity
In an effort to capitalize on an expected demand for Lucid Air and reduce the costs of electric vehicles, management is increasing its production capacity. The company commissioned its state-of-the-art manufacturing facility in Casa Grande, Arizona, in the third quarter of 2021, with a manufacturing capacity of 34,000 vehicles per year.
Lucid plans to increase production capacity to 90,000 vehicles per year at this plant by the end of 2023. The company is also targeting production of its Gravity SUV to its lineup by the end of 2023, which should better enable it to conquer market share in the segment of passenger vehicles.
According to Lucid Motors, “The Phase 2 expansion is expected to add 2.85 million square feet of production footprint and further vertically integrate production processes.” The company has already begun investing in property, plant and equipment associated with the Phase 2 expansion.
Expansion of footprints internationally
These efforts are complemented by the continued expansion of retail, delivery and service capabilities. At the end of Q3 2022, Lucid expanded its presence to 13 locations in key geographies across the United States.
Management plans to expand the reach of the business by entering international markets including Canada, EMEA and China. In addition, management intends to open manufacturing plants in Saudi Arabia and China, given the growth potential, in terms of order volume, in these markets.
Given these facts, Lucid has ambitious long-term plans, but local manufacturing in key markets will help reduce costs.
Conclusion on LCID actions
The company is currently trading at a 12-month price-to-book ratio of 12.79x. That’s much higher than the industry median of 2.58x. This premium valuation is justified by its aggressive expansion plans, expected new product launches and encouraging demand for its product.
Lucid Motors is in its growth phase. As the company expands its operations globally and ventures into new geographies, it is well positioned to benefit.
The increased need for decarbonization is expected to support global demand for electric vehicles. And Lucid, with its superior technology, is well positioned to get more of that space.
The company has $4.4 billion in cash and cash equivalents at the end of Q3 2021 from its recent reverse SPAC merger. This, combined with its issuance of $2 billion in convertible notes, allows it to be well funded to carry out its expansion plans. The upcoming fourth quarter results should act as a catalyst to relaunch the LCID stock towards bigger gains.
As of the date of publication, Sakshi Agarwalla had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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