The global electric vehicle or EV market is expanding rapidly due to the worldwide shift towards clean energy solutions. Similar to other high-growth sectors, the EV segment is also attracting multiple players. While Tesla remains the undisputed leader in this vertical, several other companies including Lucid Motors (NASDAQ: LCID) are rightfully on the shopping list of long-term investors.
A look at Lucid Motors’ financials
Lucid Motors began deliveries in Q3 of 2021 and confirmed order bookings stood at 13,000 vehicles at the end of the quarter, reflecting an order book of $1.3 billion. Moreover, its reservations increased to over 17,000 by November 15.
The company ended Q3 with $4.8 billion in cash, thereby strengthening its balance sheet and providing it with enough resources to expand manufacturing capabilities. Last December, Lucid also raised $1.75 billion via a convertible note offering, increasing its total cash balance to $6.5 billion.
Lucid Motors’s vehicle production started at its advanced manufacturing plant in Q3. At the same time, the second phase of construction that began in the September quarter will add another 2.85 million square feet of manufacturing space.
This will allow the company to expand its retail and service networks and gain traction in international markets like Canada, Europe, the Middle East, and Asia. It currently has a footprint in 13 regions in the U.S., driving near-term revenue for Lucid Motors.
What I like about Lucid Motors
Lucid Motors directly owns and operates its retail studio and service centers to provide a highly engaging experience to customers. Lucid Motors already has the longest-ever driving range for a battery-powered vehicle as the Dream Edition R can cover 520 miles on a single charge.
Driven by robust customer demand, the company now expects to deliver 20,000 electric sedans in 2022. Analysts tracking the stock expect Lucid Motors to post revenue of $2.01 billion this year, while sales might surpass $4 billion in 2023.
Risks to Lucid Motors share price
While Lucid Motors is poised to benefit from several secular tailwinds going forward, it remains a high-risk bet, similar to other growth stocks. LCID stock is valued at a market cap of $43.77 billion valuing it at a forward price to 2022 sales multiple of more almost 22x, which is extremely steep.
The ongoing broader sell-off has already dragged LCID stock 54% from all-time highs. The stock can continue to slide further if the markets remain volatile this year. Additionally, automobile manufacturing is highly capital intensive which means Lucid Motors will continue to burn cash before generating sustainable profits. Finally, the threat of interest rate hikes will increase the costs of securing debt, while raising equity will dilute shareholder wealth.
In fact, Lucid Motors’ free cash flow stood at a negative $1 billion in Q3, and this burn rate will increase in the next few quarters as it focuses on a brisk expansion strategy.
Lucid Motors’ growth potential
Lucid has several things going for it, including an EV market forecast to touch $824 billion by 2030, up from $163 billion in 2020. It has an excellent leadership team and a widening product portfolio. The company is well-cushioned in terms of cash and should outpace the broader markets in the upcoming decade.
Contributing Writer at MyWallSt
Aditya took an interest in the stock market during the financial crash of 2008-09. His favorite stocks include Roku and Apple as both companies enjoy a leadership position in their respective verticals and are poised to beat the broader markets consistently going forward.