Where Will Lucid Group Be in 3 Years?

One of my favorite electric vehicle (EV) stocks to monitor in the past few years has been Lucid Group (NASDAQ: LCID). Over the past decade, at least 30 electric car start-ups have gone out of business. But Lucid keeps chugging along, helped immensely by its biggest financial backer: Saudi Arabia's sovereign wealth fund.

In an industry rife with financial failures, having a deep-pocketed lead investor is a huge advantage. Only a few EV start-ups in history have become financially viable businesses, independent of outside investment. Here's what Mark Wakefield, managing director at AlixPartners, told CNBC:

Tesla, outside of the Chinese, is kind of the first automaker to start in half a century. Rivian and Lucid are sort of the next two closest of the Western ones. Both of them have eviscerated $10 billion. So it's interesting to see these other small start-ups who raise $1 billion or $2 billion and they think that's enough. It's not even close.

Despite heavy investment over the years, Lucid's market cap is now down to just $3.2 billion -- less than 1% the size of Tesla. Yet the company has big dreams for the future. Could this be your chance to buy a potential growth superstar at a major discount?

Lucid's management team has big plans for 2026 and beyond

Lucid has two clear paths for growth.

First, Lucid wants to move away from auto manufacturing over the long term. Manufacturing is capital-intensive, rife with production challenges, and generally lower-margin and more competitive than other business models. That's why last year, Lucid's departing CEO, Peter Rawlinson, revealed his true vision for the company. "I'd love it to be 20-80," he told industry website InsideEVs. "Twenty percent doing cars, 80% licensing."

I'm a big fan of this approach. As the EV industry matures, competition will heat up. It won't be like earlier decades, in which Tesla largely had the North American market to itself. Over the next few years, conventional automakers expect to continue releasing new EV models. But there are also new start-ups like Scout and Slate that expect to launch new vehicles in 2027 and 2028. With EVs becoming more and more tech-focused, a tech supplier approach could be a profitable, higher-margin niche for Lucid to move into.

To become a bona fide tech supplier, Lucid wants to prove its technology first by launching its own vehicles. "People think, 'Oh, why didn't you just be a supplier, Peter?' Because we need the cars as a shop window for our product," Lucid's former CEO stressed. So far, Lucid has only released a trio of high-priced luxury vehicles, unaffordable to most consumers. But recently, the company outlined a plan to bring several additional low-priced models to market: three mid-size SUVs and a two-seat robotaxi.

Robotaxis alone could be a $10 trillion global industry. And a big majority of consumers want their next car to cost less than $50,000. If Lucid can execute on its vision over the next three years, its growth prospects would improve significantly. There's just one problem: Investors may not win even if Lucid succeeds as a business.

Image source: Lucid Group.

AI dominance and cheap cars won't be an easy feat for Lucid

Investing in artificial intelligence (AI), autonomous driving capabilities, and cheaper models is great on paper. In many ways, this is exactly what other EV companies like Tesla and Rivian are betting on. But Tesla's $1.2 trillion market cap allows it to raise billions of dollars at the snap of a finger by selling additional stock. Rivian isn't as advantaged, but its $18 billion market cap and multibillion-dollar partnerships with deeper-pocketed automakers like Volkswagen still allow it to think long-term about capital allocation.

With a market cap of just $3.2 billion, Lucid has a severe capital disadvantage. So while its vision is sound, its feasibility is rightfully in question. Saudi Arabia's Public Investment Fund may prove a reliable capital partner, but its involvement may come at the cost of steep shareholder dilution. So even if Lucid succeeds with its vision, there's no guarantee that minority investors will profit. I still like Lucid as a business, but I'm remaining on the sidelines when it comes to Lucid as an investment.

Ryan Vanzo 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.