Better EV Stock: Lucid vs. Tesla
Key Points
Lucid's loss are significant and its recent vehicle sales boost was due to a rush of demand before EV tax credits expired.
Tesla's operating expenses increased by 50% as the company seeks to expand into new areas of growth.
Both companies are currently facing significant hurdles, and investors should exercise caution when considering the purchase of either stock.
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Investors seeking to tap into the electric vehicle (EV) industry now have more options than ever. Many traditional automakers sell EVs, and there are more pure-play electric vehicle makers than ever, with two popular options being Lucid (NASDAQ: LCID) and Tesla (NASDAQ: TSLA).
These companies are at different places in their EV journey, so it may not be entirely fair to compare them on all fronts. Nevertheless, some investors are no doubt trying to decide which one is the better EV stock to put their money into. So, here's how the two compare right now.
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Image source: Tesla.
Lucid's losses and high cash burn
Let's start with some good news for Lucid. The company's revenue rose by 68% in the third quarter to nearly $337 million, and Lucid's vehicle production spiked 116% to 3,891 vehicles. What's more, its deliveries rose by 47% compared to the year-ago quarter to 4,078.
However, there's a slight asterisk next to the company's sales in the recent quarter, as they were temporarily boosted by customers rushing to take advantage of expiring EV tax credits. That's no fault of Lucid's, but it skews the data and makes the outlook appear rosier than it really is.
Specifically, Lucid's losses are substantial, and it continues to incur significant expenses to expand production. In Q3, the company reported a non-GAAP net loss of $2.65 per share and had $2 billion in long-term debt. Moreover, Lucid has $955 million in negative free cash flow, an increase from a loss of approximately $622 million in the year-ago quarter.
All of this means that Lucid is currently unprofitable, and it's continually spending more money as it attempts to expand its business. Furthermore, Lucid has had to rely on its largest investor, the Saudi Arabia Public Investment Fund, for billions of dollars in investments to sustain the company.
Tesla is facing many hurdles
Tesla is, of course, a much more established EV maker than Lucid, but it's also facing some significant headwinds.
Despite revenue rising 12% in the third quarter to $28.1 billion -- like Lucid, thanks to customers buying vehicles before tax credits expired -- Tesla's profits are falling, and expenses are rising. The company reported a GAAP net income of $1.4 billion for the quarter, down 37% from the same quarter last year. Meanwhile, operating expenses rose 50% to $3.4 billion.
With the expiration of tax credits and some consumers losing their appetite for EVs, Tesla's struggles are likely to persist for some time. Tesla CEO Elon Musk has an idea of where the company's next stage of growth will come from, namely, autonomous vehicles (AVs) and humanoid robotics.
The company is making modest gains on these fronts, with Tesla offering a self-driving service in Austin, Texas (which still has human safety drivers on board in some cases), and having produced hundreds of its Optimus humanoid robots. The two markets certainly have a lot of potential, with AVs estimated to be worth about $1.4 trillion by 2040 and humanoid robots estimated to be worth $5 trillion by 2050.
The problem is that it will take billions of dollars and many more years of development for Tesla to experience any financial benefits from these markets, if it ever does. In the meantime, its expenses are surging higher and its profits are tumbling.
So, which is the better EV stock?
Honestly, it's probably best not to buy either stock right now. Lucid has yet to prove it can scale its business in a way that will approach profitability, and the company is entering uncharted territory with the expiration of EV tax credits. Its vehicles were too expensive to directly benefit from the credits, but customers were previously able to take advantage of a leasing loophole. That's gone now.
Tesla, for its part, is making big bets on unproven markets, and doing so at a time when the company's profits are falling and it's spending heavily. If I had to pick one, I'd choose Tesla simply because the company remains a well-established player in the EV market.
However, the big picture here is that the EV market is likely entering a challenging period, which could negatively impact both Tesla and Lucid for the foreseeable future.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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