Shares of electric vehicle companies such as Lucid Motors and Rivian are trading at a steep discount to analyst price target estimates.
The last six months have not been kind to stock market investors. Most equity indices traded near record highs in 2021 and have since moved significantly lower year-to-date.
Growth stocks across sectors have been hammered due to various factors that include rising interest rates, supply chain disruptions, inflation, rising commodity prices, geopolitical tensions, and the prospect of a global recession.
Electric vehicle stocks such as Rivian (NASDAQ: RIVN) and Lucid Motors (NASDAQ: LCID) are currently trading 81% and 64% below all-time highs. However, as it's impossible to time the market, every major dip in share prices can be viewed as an opportunity to buy quality companies at a lower multiple.
While Rivian and Lucid Motors are trailing the broader markets in 2022, let's see why Wall Street remains bullish on the two electric vehicle manufacturers.
Lucid Motors
Shares of Lucid Motors went public in early 2021 and touched an all-time high of $57.75. LCID stock is currently trading at $20, valuing the company at $33.3 billion by market cap. Lucid Motors began shipments of its vehicles in Q4 of 2021. As of May 5, Lucid's vehicle reservations surpassed 30,000 units, bringing in $2.3 billion in potential revenue.
Lucid confirmed it would manufacture between 12,000 and 14,000 vehicles in 2022, while analysts expect the company to report $1.38 billion in sales this year. In Q1 of 2022, Lucid Motors reported revenue of $57.7 million on the back of higher customer deliveries of Lucid Air vehicles.
Lucid Motors ended Q1 with $5.4 billion in cash, providing it with enough liquidity to expand manufacturing capacity and benefit from economies of scale over time. During the Q1 earnings release, Lucid Motors stated it signed a deal with the government of Saudi Arabia, where the latter has committed to purchase up to 100,000 electric vehicles from the company in the next 10 years.
Wall Street also forecasts sales to touch $3.5 billion in 2023, valuing LCID stock at 9.5x forward sales, which is steep given an uncertain macro environment. LCID stock is trading at a discount of 50%, given the 12-month consensus price target is $30.
Rivian
Backed by giants such as Amazon and Ford, Rivian is another electric vehicle stock with solid long-term prospects. As of May 9, Rivian confirmed it had 90,000 pre-orders for its R1 pickup truck and SUV vehicles. Further, Amazon has also pre-ordered 100,000 battery-powered delivery vehicles from Rivian, which will be shipped by 2030.
Rivian began production in 2021 and has since manufactured 5,000 vehicles to date. It now aims to increase production capacity to 25,000 in 2022 after shipping 2,553 vehicles in Q1.
According to analyst estimates, Rivian is forecast to report revenue of $1.84 billion in 2022 and $6.47 billion in 2023. So, RIVN stock is currently valued at 4.4x next year's sales, making it cheaper than Lucid Motors. Wall Street expects Rivian stock to almost double in the next 12-months, given its depressed valuation.
The bottom line
Lucid Motors and Rivian are part of rapidly expanding addressable markets. According to a report from Allied Market Research, the global electric vehicle market is forecast to touch $823.75 billion by 2030, compared to $163 billion in 2020.
However, these two growth stocks are also high-risk bets for investors due to the challenges faced by the automobile sector, which is highly capital intensive.
The next 12-months will be extremely challenging for electric vehicle investors due to rising nickel prices, a critical component used to manufacture lithium-ion batteries. Russia is a major supplier of nickel, but the country has been slapped with a variety of sanctions due to the invasion of Ukraine.
Earlier this year, investment bank Morgan Stanley forecast input costs for EVs to rise by $1,000 in the U.S. In addition, the supply chain glut and lockdowns in China, coupled with decade-high inflation will hurt both demand and supply for EV companies in 2022.
Further, the uptick in interest rates will raise the cost of debt for Rivian and its peers. The two manufacturers will have to pump in billions of dollars in capital expenditures before turning profitable. While Rivian and Lucid have an enviable war chest, it is quite likely both will raise capital within the next few years, which will pressure their balance sheets or dilute shareholder wealth.
Competition from legacy manufacturers such as Ford, Toyota, and General Motors will also impact revenue growth for Lucid and Rivian going forward.
