Lucid‘s (NASDAQ:LCID) first-quarter results, reported on May 6, were uninspiring, and the valuation of Lucid stock remains excessive. On the other hand, I’m now 70% to 80% sure the automaker’s upcoming Gravity SUV will be at least popular enough to keep the company afloat for the foreseeable future. I also think there’s a 50% to 60% chance the EV will meaningfully boost Lucid stock over the longer term.
Further, as I pointed out in a previous column, Lucid can capitalize on Tesla‘s (NASDAQ:TSLA) problems. It can also benefit significantly from selling software subscriptions to its customers. And finally, Lucid stock, along with all the other American EV names, will be strong in the short- to medium-term.
Still, I continue to view Lucid stock as too risky to buy or hold at this point. Consequently, I still recommend unloading the shares.
Unimpressive Q1 Results and an Excessive Valuation
Lucid’s top line climbed 15.6% versus the same period a year earlier to $172.7 million. That’s not particularly tremendous growth for an EV startup supposedly on its way to becoming a leading automaker. And the firm delivered fewer than 2,000 vehicles. Conversely, Rivian (NASDAQ:RIVN), an EV startup that I have been and remain enthusiastic about, delivered nearly 13,600 EVs in Q1, while its revenue soared 81.5% year-over-year to $1.2 billion.
On the valuation front, Lucid stock has a very high price-sales ratio of 9.5 times. That’s an especially elevated valuation in light of its uninspiring growth and the tough competition that it’s currently facing in the luxury EV sedan market.
The Positive Outlook of the Gravity SUV
Encouragingly for Lucid and Lucid stock, the Gravity received a very positive review from Green Car Reports in an article published on May 1. After viewing a prototype of the EV, which is still slated to hit the market later this year, the publication called its appearance “pretty sharp.” Moreover, Green Car highlighted the fact that the Gravity will be unique because it’s a crossover with three available rows of seating. Also favorably, the publication compared the EV’s handling to that of a Porsche (OTCMKTS:DRPRY) Cayenne or one of Mercedes‘ (OTCMKTS:MBGAF) vehicles. And finally ,the reviewer wrote that the Gravity “promises to deliver family comfort for a daily commute and sporty driving dynamics for the long way home in a way no other electric seven-seater yet does.”
In my previous column, I noted Newsweek was also generally upbeat about the Gravity. I pointed out the EV had a high expected maximum range of 440 miles. Additionally, I noted that the Gravity’s price tag is competitive with Tesla’s Model X and Rivian’s R1S.
Adding to my optimism about the Gravity, Lucid CEO Peter Rawlinson, speaking on the company’s earnings call, stated the EV’s total addressable market will be six times as large as its sedans that are currently on the market. He also reported a survey conducted by a different firm showed two-thirds of those looking to buy electric SUVs would consider buying such a vehicle made by Lucid.
The Bottom Line on Lucid Stock
As I noted previously, Tesla has received a great deal of negative publicity. That positions Lucid to benefit from the situation. Further, Lucid, like other EV makers, is poised to generate significant revenue over the longer term by selling software subscriptions. Finally, the 100% tariffs that President Joe Biden is imposing on Chinese EV imports are likely to boost Lucid stock and its peers in the short-to-medium term.
Despite all of these positive points, the high valuation of Lucid’s shares and the execution risk posed by the Gravity continue to make the shares a sell for now.
On the date of publication, Larry Ramer held a long position in RIVN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
