Why the scarcity of the automotive supply will not increase the Lucid Group stock
The persistent auto shortage in the United States continued in August, according to JD Power. Investors could respond to the auto shortage by buying from automakers reliant on internal combustion engines. Watching the electric vehicle market grow is a better opportunity for growth. Lucid group (NASDAQ:LCID) is a particularly interesting trade, as the LCID share is stuck in a narrow trading range.
The shares hover between $ 20 and $ 25. Speculators bought the shares in large volumes after the private investment in public capital (PIPE) expired.
Besides those who bought the stock as a teenager, will Lucid go over $ 25? If so, when will it happen?
Lucid Motors has yet to sell a vehicle, leaving speculators to bet on the share price against Tesla, a transaction that will prove too risky.
Short sellers smart bet against LCID stocks
The Covid-19 disrupted the supply chain as it swept the world 18 months ago. This has led to a shortage of chips which is ravaging the auto market. Internal combustion engine car makers and electric vehicle manufacturers have faced tight supplies. They have reduced their income for the upcoming quarterly sales. The disturbance is so severe that Toyota engine (NYSE:MT) lowered its month of October production forecast after having already reduced its global production in September by 40% from forecast levels.
Investors considering Lucid cannot ignore the struggles of established auto companies. Lack of sales of real vehicles, The short float is almost 22% because bears bet operational delays will cause big losses.
Admittedly, Lucid has already delayed production of the Air electric sedan. in the second quarter of 2021. The chip shortage prolonged early shipments, leaving 10,000 customers wait longer. Investors cannot rely on the availability of Air Grand Touring and Air Dream Edition as positive catalysts. Electric vehicles cost $ 139,000 and $ 169,000, respectively, before the incentives. While early adopters will take delivery of these models, total sales won’t move the share price much.
Lucid has sold the Dream model, which he plans to sell at just 500 units. This represents approximately $ 850 million in revenue. With a market cap of $ 30 billion, Lucid is therefore valued at around 35 times sales based solely on Dream sales. By comparing, Nio (NYSE:NIO) is trading at a P / S of around 15x. Li Auto (NASDAQ:LI) is trading at 13x P / S. These companies are based in China, so since investors are avoiding the region, the comparison is not fair.
by Tesla (NASDAQ:TSLA) P / S of around 17x is a better comparison. The incumbent has global operations and is widely held. It is a relatively cheaper LCID stock.
Don’t ignore the risks of production delays
Investors should not ignore the ongoing production delays that Lucid faces. As Lucid reaches significant production levels, it faces competition from a large number of electric vehicle companies. This includes Fisker (NYSE:RSF).
Tesla will have no trouble competing with Lucid in the high end of the market. He launched A Model S Plaid to recapture unparalleled performance benefits. For example, Plaid got a official lap time of 7 minutes and 35.579 seconds. The average speed was 102 mph. CEO Elon Musk wrote: “The Tesla Model S Plaid just set an official world speed record for a production electric car at the Nurburgring. Completely unmodified, direct from the factory.
Early adopters looking for the best-performing vehicle might consider purchasing Tesla’s latest model instead of waiting longer for the first version of Lucid.
High stock valuations could cause VE stock multiples to contract. Lucid has no income or income yet. Speculators can sell LCID shares for the benefit of short sellers. Value investors can close their long positions in VE stocks and buy Ford (NYSE:F), Toyota, or General Motors (NYSE:DG) stock instead.
On Wall Street, Lucid’s special purpose acquisition company structure bypassed the route of the initial public offering, leaving little incentive for seller-side analysts to recommend the stock. The consensus of the three followed by TipRanks, reveals with a target price of $ 23.33, or 10% increase from current levels.
Your takeaway meals
The chip shortage that led to the automotive shortage offers no positive catalyst to help increase LCID inventory. Post-SPAC society remains a highly speculative business. Lucid has major barriers ahead.
Its first delivery could trigger a “news sale” event that would lower the stock. In a few quarters, investors will better understand its lack of profitability. As it increases production, expenses may increase faster than income.
Once Lucid completes the sale of the high-end models, the production of mid-range electric vehicles will have lower profitability. This will shock investors and hurt the performance of Lucid shares. In the end, Tesla remains the incumbent operator to beat. Having established a global divide, this will prove to be very difficult.
As of the publication date, Chris Lau does not have (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Chris Lau is a contributing author for InvestorPlace.com and many other financial sites. Chris has over 20 years of experience investing in the stock market and leads the Do-It-Yourself Value Investing Market on Seeking Alpha. He shares his stock picks so readers get original information that helps improve returns on investment.