The Lucid Stock Turnaround Story: From High-Priced Hype to Undervalued Opportunity?

Stocks to sell

For multiple reasons, the outlook of luxury electric vehicle maker Lucid Motors (NASDAQ:LCID) has greatly improved in recent months. First, there’s a great deal to like about its upcoming Gravity SUV, including its fairly unique seven seats and overall appearance. Meanwhile, Lucid should benefit from Tesla’s (NASDAQ:TSLA) multiple problems, while the valuation of Lucid stock has become much less demanding after the shares tumbled over the last year. Finally, I believe that the media is becoming more excited about the automaker and its EVs, boding well for its financial results over the longer term.

However, the valuation of the shares remains high, and the automaker still has to successfully produce, launch and market the Gravity in order to show that it can ultimately survive and thrive.

Given these points, I continue to recommend that investors sell LCID shares until the automaker’s outlook becomes more certain.

The Promising Gravity SUV

Unlike many SUVs, some of the Gravity EVs that Lucid will make will include three rows, enabling it to comfortably transport seven adults. Meanwhile, Car and Driver, which drove a prototype of the SUV, praised its roominess, its relatively smooth ride, and its design.

The EV, due to go on sale by the end of this year, also boasts an 8 cubic foot “frunk” — cargo space in the front — along with a sizeable trunk. Also importantly, the Gravity is expected to have a high range of 440 miles, along with more than 800 horsepower. Lucid says it will be able to accelerate from 0 to 60 miles per hour in less than 3.5 seconds. The outside of the EV appears to be attractive and well-designed, while its interior is also easy on the eyes.

Finally, the Gravity’s starting price is expected to be below $80,00, putting it on par with Tesla’s Model X and Rivian’s (NASDAQ:RIVN) R1S and making it roughly $20,000 cheaper than Mercedes’ EQ SUV.

As a result, the EV is competitive on price, unlike its current offering, the Lucid Air sedan, which starts at $70,000, making it much more expensive than Tesla’s Model 3 and Volkswagen’s (OTCMKTS:VWAGY) ID.4.

Given the high popularity of SUVs in America, the Gravity’s exceptional roominess and its price competitiveness, I believe that it will be much more popular than the Lucid Air.

Tesla’s Issues and Lucid’s Lower Valuation

Tesla’s recent problems, such as issues with the Cybertruck’s accelerator pedals, have received a tremendous amount of coverage. Moreover, Tesla’s declining sales and its price cuts have been covered quite closely.

In light of the large amount of negative coverage that Tesla is getting, along with CEO Elon Musk’s controversial views, I expect the market share of all of its EVs to decline going forward. Those downturns should create opportunities for Lucid to attract more buyers.

On the valuation front, LCID stock has retreated 42% so far in 2024 and 65% over the last year, making its market capitalization much smaller than previously and causing its valuation to be less steep.

However, the shares are still changing hands at a rather high enterprise value to revenue ratio of 7.1 times.

Increased Buzz and the Bottom Line on Lucid Stock

Media outlets appear to be significantly more excited about Lucid’s outlook now than they have been for the past few years.

In addition to generally being upbeat about the Gravity, for example, Newsweek recently identified Lucid, along with Rivian, as the two EV startups that had managed to perform well enough in order to move on to working on new, promising EVs. What’s more, the publication praised the 516-mile range of the Grand Touring version of the Lucid Air, an achievement that Lucid attained last year.

According to Newsweek, the vehicle now has the longest range of any EV in America. In previous years, mainstream media outlets generally did not publish such glowing reports on Lucid. And as I’ve stated previously, the reviews of the Gravity have generally been quite favorable.

The Gravity looks promising, Lucid can exploit Tesla’s problems, and the media appears to have become more enthused about the firm.

As a result of the latter points, I expect Lucid’s financial results to meaningfully improve over the longer term. Still, given the company’s need to execute very well on the Gravity and the still-elevated valuation of Lucid stock, I suggest that investors remain on the sidelines for now when it comes to Lucid.

On the date of publication, Larry Ramer held a long position in RIVN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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