Is Lucid Group the Next Tesla?
Key Points
Lucid is using a growth strategy that is similar to the one Tesla succeeded with.
The company aims to reach profitability on vehicle sales through improved manufacturing economics.
It faces some big challenges, and its odds of posting Tesla-like returns are a long shot.
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Lucid (NASDAQ: LCID) is a player in the electric vehicle (EV) market focused on luxury sedans and SUVs. The company's Air sedans and Gravity SUVs generally receive very high marks from automotive media outlets and drivers, and the business's basic strategy bears substantial similarities to the approach that Tesla (NASDAQ: TSLA) used to become one of the world's most valuable companies.
Tesla posted negative gross margins on each vehicle sold and operated at a loss for years, but the company bet that driving adoption for its vehicles and expanding manufacturing operations would allow it to leverage economies of scale and improve margins as the marginal cost to produce additional vehicles fell.
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With Lucid utilizing a similar strategy, could the smaller EV company eventually go on to produce Tesla-like returns?
Image source: Getty Images.
Lucid has a tough road ahead
Tesla enjoyed a major head start in the EV market, and Lucid faces a much more challenging backdrop by comparison. Growth for the EV market has slowed substantially in recent years, and Lucid is also facing an influx of competition from Chinese manufacturers. Government subsidies for the EV market have also expired.
Across last year's first three quarters, Lucid posted a net loss of roughly $1.88 billion. While the launch of the Gravity SUV substantially increased the company's vehicle production and deliveries, the business is still far away from a potential shift into profitability. As a result, the company will likely continue to rely heavily on new stock sales in order to fund its operations -- creating a dilutive impact for shareholders.
With these dynamics in mind, I think it's very unlikely that the stock will go on to be the next Tesla.
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Keith Noonan 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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