2 Things Every Lucid Group Investor Needs to Know

Everyone wants to find the next Tesla (NASDAQ: TSLA). But essentially zero other electric vehicle (EV) stocks have ever matched even a fraction of Tesla's success. Rivian, for example, has a market cap of $18 billion while Lucid Group (NASDAQ: LCID) is even smaller at a $4 billion valuation. Tesla, of course, is now valued at more than $1.2 trillion.

If Lucid ever reaches Tesla's current size, investors would end up with 300 times their original investment! Lucid stock currently has the potential to reach that valuation, but there are two things you'll want to understand before jumping in.

Image source: Lucid Group.

1. Don't think of Tesla or Lucid as car manufacturers

There's a reason Tesla is valued above $1 trillion. And it's not due to the company's car manufacturing business. At least not directly. Just look at the numbers. Rivian -- a fairly well-financed EV competitor that is currently mostly focused on designing and producing new EV models -- trades at a price-to-sales ratio of 3. Tesla, on the other hand, trades at more than 15 times sales!

Tesla does have other business units, like energy generation and storage. But those segments still contribute a small portion of the company's revenue and profits. The company's car business, meanwhile, is expected to barely grow this year. Overall vehicle sales may even shrink in 2025. So what is driving Tesla's premium valuation? It mostly comes down to one giant opportunity: robotaxis.

Tesla bull Cathie Wood believes the global robotaxi market will eventually be worth $5 trillion to $10 trillion. Tesla is now offering pilot services in Austin, Texas, with plans to expand to more cities before the end of the year. This robotaxi opportunity is arguably what accounts for most of Tesla's valuation today.

Lucid has wanted to make this jump for years, going from a car manufacturer to a service provider. In an interview earlier this year, former CEO Peter Rawlinson said he'd like most of the company to be focused on tech licensing versus just car manufacturing. "I'd love it to be 20-80," he stressed. A few months ago, Lucid signed a major deal with Uber Technologies that may put it on a path toward that goal. In exchange for a $300 million investment from Uber, Lucid will provide the ride-sharing company with 20,000 Lucid vehicles over the next six years. Those vehicles will be put to use in Uber's own robotaxi division.

While Tesla is acting as a car maker and service operator, Lucid will mostly just be a car maker and technology licenser. But this opportunity is what makes some investors so bullish on shares. Lucid's technology is clearly in demand, as evidenced by the Uber deal. This makes it possible for the company to benefit directly from the rise of robotaxis, which as Cathie Wood believes, could be a $5 trillion to $10 trillion total addressable market.

2. Lucid stock may not grow like the company

Lucid has high growth upside due to its robotaxi exposure. But that doesn't necessarily make the stock a worthwhile investment. Here's an illustration of how that is possible. In 2021, Lucid's revenue was close to $0. Today, sales are above $1 billion. And yet over that time period, shareholders have lost more than 90% of their original investment.

Why? A big reason is share dilution. Because Lucid remains unprofitable, it has been forced to sell more and more shares to stay solvent, diluting shareholder's potential profits. So while the company has grown massively, the stock has been a dud.

While I'm excited about Lucid as a business, it simply isn't a viable option for me as an investment right now. Deep-pocketed partners like Saudi Arabia's sovereign wealth fund should keep the company afloat for years to come. But as the illustration above shows, that won't necessarily translate into profits for everyday investors. More than 30 EV companies have gone under over the past decade alone.

The biggest reason is simple: It takes a lot of capital to grow, plus a lot of time to turn profitable. For now, I'm sticking with business that are already profitable, like Tesla, plus EV stocks that have at least attained positive gross margins, like Rivian.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.