Lucid Motors (NASDAQ:LCID) stock has had a great 2021 and the company is one of the most innovative EV makers in the world today.
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Lucid is enjoying the positive reviews of Lucid Air, but I think it is too soon to have a review on the car. LCID stock hasn’t moved much over the past six months. It was trading at $23 in April and is exchanging hands at $26 today. The stock has shown high volatility over the past few months, and I think investing in LCID stock is not without the risks.
The company does have a massive opportunity, but it is too soon to call it a success. For now, it is only speculation until future clarifications. With that in mind, let’s dig deeper into the risks associated with LCID stock.
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Highly Ambitious Targets
Lucid Motors has an impressive design and technology to make a mark in the industry, but the company has just begun production. It has set ambitious targets to start production this year and produce 577 cars in the next two months. Further, it aims to sell 20,000 cars in 2022. Additionally, the company also plans to begin the production of its SUV in 2023 and expand the business. This looks good on paper but is easier said than done.
The entire EV industry is facing a chip shortage, and this could hamper the company’s plans. Even if the company manages to produce 20,000 vehicles, there is no guarantee that it will be able to sell them next year. This target does not look easily achievable to me. The company has no previous experience of mass production, and it could lead to delays. It may have the right ideas, but execution is the key to success.
The massive jump from 577 cars to 20,000 cars is huge and too ambitious. It only looks good on the paper but turning it into a reality is a whole different thing. I think the timeline is too short and the goals are too big for the company at this stage. There will always be the risk of production delays, chip shortages, and rising competition in the EV industry.
LCID Stock Is Overvalued
Building an EV is not cheap, and the company needs abundant resources. However, the current valuation of the company is very high considering the fact that there is no revenue yet. The company will only be able to report revenues after it sells vehicles this year.
This also means that Lucid Motors will not be profitable for the next few years even if it meets the target of selling 20,000 cars in 2022. This increases the risk of dilution because the company will need funds to manufacture and sell the target number of cars.
Let us not forget the rising competition in the EV segment. Lucid may be targeting the premium segment but it is not alone there. The company will have to face stiff competition and prove its worth.
The Bottom Line
Lucid certainly looks promising and could compete with some of the top luxury EV makers in the industry but it may have unexpected delays and hurdles that could impact production. I think it is best to stay on the sidelines until the company manages to sell a few cars. There will be several opportunities to buy LCID stock in the future.
Until risks have decreased, the stock is not worth betting on.
If you are keen on investing in the EV industry, there are other safer stocks to pick. Lucid Motors is fairly new with no revenue and an ambitious goal. Anything could go wrong, so keep a watch on the company. But do not bet your money on it yet.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.
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