Where Will Lucid Stock Be in 5 Years?

With shares down a whopping 75% over the past half-decade, Lucid Group (NASDAQ: LCID) is an example of the risks involved in stock market investing. While electric vehicles (EVs) are widely expected to eventually replace their gasoline-powered counterparts, the road to mainstream acceptance has been much choppier than anticipated.

The Trump administration's reduction in EV industry support has made things even harder for smaller, unprofitable players like Lucid, which are trying to transition to the mass market. Let's assess the company's challenges and opportunities to decide if it is finally time to buy.

Lucid's luxury focus is a double-edged sword

Following in the steps of industry leader Tesla, many upstart EV manufacturers have attempted to launch their own brands at the higher end of the market, offering luxury instead of practicality. There are several benefits to this strategy.

For starters, it helps these companies establish cachet and a reputation for quality when their brand image is just being formed. Furthermore, it allows them to slowly ramp up production until they are large enough to benefit from economies of scale.

Lucid's products are notably expensive, with the MSRP of its flagship 2025 Lucid Air Sedan running from $71,400 to $250,500, depending on specifications. And even though the car has won plenty of industry awards, its high-end price tag means a smaller potential customer base.

The company is tackling this problem by diversifying its lineup into SUVs with the new Lucid Gravity. But with a starting MSRP of $94,900, this still serves the higher end of the market. A lower-trim (but still relatively pricey) touring version of the vehicle will start at $79,900.

Lucid's sales are starting to accelerate

Despite the high price tags of its vehicles, Lucid's sales are starting to pick up. Second-quarter revenue jumped 29% year over year to $259.4 million, driven in part by the popularity of the company's new SUVs. And while Lucid is still burning through boatloads of cash, the situation is rapidly improving, with operating losses halving to $803 million.

That being said, the company is still very far from profitability. And that means investors should expect equity dilution, which is when a company creates and sells new units of stock to raise money. While this can be a neutral or positive thing if that extra cash is used to create value (or prevent bankruptcy), it often hurts existing investors by reducing their ownership stake in the company and their claim on its future earnings.

Image source: Getty Images.

Lucid has raised capital several times in the past with the help of the Saudi Arabian Public Investment Fund (PIF), which now owns over 60% of its equity, according to Reuters. And while Lucid can definitely benefit from having a powerful government-connected backer, future capital raises to the PIF could increase the risk that the stock is taken private before retail investors get to enjoy its potential rebound.

Lucid can win over the next five years

There are a lot of reasons to be optimistic about Lucid over the next five years and beyond. For starters, the early popularity of its new Gravity SUV is a good sign. Sales could accelerate even further when the lower-priced touring trim becomes available. Furthermore, unlike mass market alternatives like the Tesla Model Y, demand for Lucid's products is less vulnerable to the loss of the $7,500 tax credit for EV purchases, which expired in September.

But Lucid is not out of the woods yet, and investors may benefit from a wait- and-see approach before considering a position in the stock.

Will Ebiefung has positions in Lucid Group. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.