Shares of luxury electric vehicle (EV) maker Lucid Group (NASDAQ:LCID) were trading higher at midday on Tuesday. As of noon ET, Lucid’s shares were up about 6.3% from Monday’s closing price.
Lucid was one of several EV names enjoying a stock rally on Tuesday, as traders responded to economic news including higher oil prices.
But at least one Wall Street analyst said that he isn’t feeling upbeat about Lucid’s near-term prospects.
There was no obvious news moving Lucid’s shares higher on Tuesday. As I noted above, other EV names including Hyzon Motors, Rivian Automotive, and Nikola were all trading notably higher at midday as well. Higher oil prices, and perhaps a more subdued reaction to likely interest rate hikes, may have been powering the rally.
But one Wall Street analyst thinks Lucid will face some big challenges to its growth. In a new note on Tuesday, Redburn analyst Charles Coldicott initiated coverage of Lucid with a neutral rating and a fair value estimate of $39.
Coldicott wrote that, while Lucid has a great product and some genuinely advanced powertrain technology, he thinks that it may deserve a lower valuation than the otherwise similarly impressive Rivian because Lucid is more directly competing with category leader Tesla (NASDAQ:TSLA).
Apparently overlooking the fact that Lucid plans to launch a large Air-based luxury SUV next year, he noted (correctly) that the global market for big sedans is skewed heavily to China at the moment, and that may be a difficult market for Lucid to enter in a significant way.
Coldicott’s take makes sense to me with respect to China, which is a market where Tesla is already established — and where it’s doing battle with impressive local rivals including Nio and XPeng.
But I disagree with him with respect to Lucid’s chances against Tesla elsewhere in the world. It seems hard for some EV-focused investors and analysts to see this, but Tesla itself will soon be facing intense competition from the so-called legacy global automakers; it seems to me a safe bet that its share of the global EV market will fall precipitously over the next few years even as its own sales continue to grow, because that market is about to expand in a huge way.
Lucid will be facing the same competitive pressures, of course. I think Lucid’s products and tech will give it a good chance of finding its way to sustainable profitability as a maker of distinctive, upscale EVs with industry-leading range.
But I do wonder when (or whether) it will grow into its already-lofty valuation.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.