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Lucid Group Is an Investment, Not a Trade, and Will Seriously Challenge Tesla

Lucid Group (LCID) is expected to report the firm’s third quarter financial results in about two weeks. The firm “went public”, ringing the opening bell up at Times Square back on July 26th after completing a merger through the SPAC process with Churchill Capital Corp IV on July 23rd that infused the firm with a cool $4.5 billion. Almost nobody follows the stock. Basically, five star (at TipRanks) analyst John Murphy of Bank of America is a bull (albeit with a $30 price target), and five star analyst Adam Jonas of Morgan Stanleyis a bear with a $12 price target. Of course Jonas just named Ferrari (RACE) ┬áhis top EV pick and still dislikes Ford Motor (F) . Being Jonas disliked Ford at $9, he must really, really hate it above $17. At least he’s a Tesla (TSLA) bull. He did get the big name in the space right.

Last Wednesday, LCID closed at $27.02. On Friday, the stock closed at $36.99. The stock kissed levels above $40 during this morning’s (Monday’s) pre-opening session. Even the most bullish among us has been taken by surprise. Late last week I traded out of what was supposed to be a short-term long in Tesla that I had hung onto for a few extra days because the stock went for a run. What I swapped into with that capital was Lucid, so at this point I guess no harm, no foul… but I could have recognized that something is indeed different this time.┬áThere is a regime change, and this transition away from America’s love affair with the combustible engine and toward electric vehicles is only going to accelerate from here on.

Hot Off The Press

Lucid ranked first in stock mentions on Reddit’s WallStreetBets on Friday. LCID was the most cited symbol on social media site Stocktwits on Friday. The news was that Lucid was expected to make the firm’s first deliveries of its custom model Lucid Air Dream Edition luxury electric vehicles over the weekend. The Air Dream Edition will run the customer $169K, and runs on a smaller more efficient battery than sold anywhere else in the space. This vehicle has an expected range of 520 miles.

The fact is that Lucid CEO Peter Rawlinson has been making the rounds, making sure that investors and potential customers know that only two companies… Lucid and Tesla design, develop, and manufacture their own electric vehicles from batteries to motors, to inverters, software and transmissions. Everyone else is buying something off the rack, and making it fit. Everyone knows that I have been a Ford bull since the stock traded with a $7 handle, and I think everyone knows that the recent strength in Ford is probably due to their aggression in tackling this transition from a legacy auto maker to an automaker that sells electric trucks and muscle cars given that the technological leaders in the space have focused on selling sedans.

Well, the leftover goodwill for LCID on Monday morning, which may not be sustainable given the parabolic look to the chart, largely comes from the fact that early reviews for Lucid’s first deliveries are coming back positive.

Earnings

This Wednesday and Thursday, both Fisker (FSR) and Nikola (NKLA) will release quarterly earnings. They will have two things in common. A net loss, and no revenue. Neither firm has yet made a delivery. On or about November 15th, Lucid will report what could be a loss of $-0.25 per share on revenue of about $1.25 million. Remember, coverage is thin so there is not really a consensus to be had. Also remember the $4.5 billion infusion and the fact that the firm has been building out a fairly expansive network of plants and service sights. As far as I can tell, but we’ll know more soon enough. Debt is not an issue, and the firm’s current ratio is well above what we might refer to as healthy.

An average of the three analysts covering this name. Wait. There’s three? There are three. The third is not well known, nor highly rated. The average of the three for full year 2021 sales is for $76 million, with growth to $1.74 billion for full year 2022. Full year EPS is expected to improve from something in the $-1.30’s to a rough $-0.86 from 2021 to 2022.

For now, to this outside observer, Tesla has a huge lead, and perhaps a moat around the middle to upper middle class consumer interest in this space. Lucid is probably technologically superior to Tesla, with smaller, more efficient, more powerful battery packs with a greater range. Lucid will, in my amateur opinion, seriously challenge Tesla for position in the market for the upper class consumer, if and this is a big if… if they can continue to scale the manufacture of these vehicles effectively. This is an investment , not a trade. I would expect the same kind of volatility in this name that we had long seen in Tesla before that name simply pulled away from the pack.

The Chart

Clearly, this stock appears short-term overbought. Just look at Relative Strength, the Full Stochastics Oscillator, or the daily MACD. Silly looking. However, I would think that though early, LCID is a strong candidate for our Pitchfork model. While the shares may have trouble hanging on to the center trendline for now, that’s not what’s important. What is important, is that this stock can fall as far as the high $20’s or low $30’s later this week, and not break anything technically.

With earnings due around November 15th, an investor could go out on November 19th and still get paid about $1.40 to take on equity risk at $30. Sarge, I am new. Can you explain that better? Sure… what I am saying is that an investor willing to take on discounted equity risk and get paid to do it, could write November 19th LCID puts for about $1.40 per contract. If you’re terrified, you can always part with half of that premium and purchase downside protection with the same expiration date at $27. For the new kids, that’s called going short a bear put spread. The rest of you be patient. Everybody is new to everything at some point.

(Ford is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells F? Learn more now.)

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