The EV market in the U.S. is heating up with new entrants or legacy automakers like Ford (F) and General Motors (GM) pursuing the EV segment.
The market got a further boost this year when U.S. President Joe Biden signed an executive order that intends to make 50% of all new vehicles sold in the United States electric by 2030.
Let's compare two such EV companies, Tesla (TSLA), an established EV player, and a relatively new entrant, Lucid Group (LCID), and see how Wall Street analysts feel about these stocks using the TipRanks stock comparison tool.
TeslaTesla has been a frontrunner when it comes to EVs. However, the stock dropped after the EV giant’s CEO, Elon Musk, initiated a poll on Twitter (TWTR) to determine whether he should sell a 10% stake in the company. Yesterday’s sell-off reflected investors’ apprehension regarding how and when Musk would react to the outcome of his poll.
Twitter users voted in favor of Musk selling his 10% stake. Musk tweeted, “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.” Moreover, he noted that he did not earn any salary or bonus from any company and only owned stock, so selling his stake was the only way to pay taxes. “I will abide by the results of this poll, whichever way it goes,” he added.
Wedbush analyst Daniel Ives viewed this Twitter poll as “another bizarre soap opera that can only happen to one company and one CEO in the world, Musk.” The analyst has long remained bullish, reiterating a Buy rating, and has a price target of $1,100 (3.9% upside) on the stock.
In Q3, TSLA successfully trumped supply chain challenges faced by the EV industry to keep its factories running. The company reported its “best-ever net income, operating profit and gross profit” in Q3 at $1.6 billion, $2 billion, and $3.6 billion, respectively. TSLA’s revenues soared 57% year-over-year to $13.8 billion beating Street estimates of $13.6 billion. (See Analysts’ Top Stocks on TipRanks)
Considering these strong Q3 results, Jeffries analyst Philippe Houchois views Tesla as “more scary near-term than bullish long-term.” The analyst has a Buy rating and raised the price target from $950 to $1,400 yesterday with 32.2% upside on the stock.
Houchois was of the opinion that the company’s Q3 automotive gross margin of 28.8% (excluding EV credits) reflected “hopes of a more profitable EV world ahead.”
More importantly, the analyst stated that TSLA’s impressive results over its competitors showcased its “multiple competitive edges” including “direct selling to battery density/cost, software, chip design/sourcing and design-to manufacture, altogether avoiding the complexity and inefficiency that are plaguing the industry's business model.”
While Houchois has been a skeptic when it comes to the possibility that Tesla could grab a 20% to 25% global share when it comes to EVs, aiming to sell 20 million units by 2030, this conviction is increasingly becoming weaker “considering the accelerating gap in growth and profitability.”
Here, the analyst listed a few key points in favor of Tesla. This included TSLA addressing the mid-market EV segment with its newer EV models, a strong balance sheet, and the company’s ability to scale up quickly at lower volumes versus legacy automakers like Volkswagen AG (VWAGY) who are entering the “margin dilutive EV transition phase.”
Wall Street analysts are sidelined on the stock with a Hold rating based on 10 Buys, six Holds, and seven Sells. The average Tesla price target of $840.71 implies approximately 20.6% downside potential to current levels, suggesting that the stock is likely overvalued.
Lucid GroupLucid Group has seen massive appreciation over the past month, with its stock soaring 89% to a current market capitalization of $70.9 billion. The company is targeting the luxury EV market with multiple prototypes and new technologies. Currently, customer deliveries are underway for the company’s state-of-the-art luxury sedan, Lucid Air Dream edition.
Lucid had stated in June this year that it had already exceeded 10,000 paid reservations for Lucid Air. The Dream edition features a 118 Kw/h (kilowatt-hour) battery pack and is able to achieve “520 miles on a single charge according to the Environmental Protection Agency (EPA), making it the longest range for any electric car rated by the organization.”
Its closest competitor is Tesla’s Model S, which has a range of 412 miles.
The company went public earlier this year through the special-purpose acquisition company (SPAC) route, thanks to a merger with Churchill Capital IV Corp. Interestingly, Lucid is headed by Peter Rawlinson, a former chief engineer at Tesla.
Lucid is expected to announce its fiscal Q3 results on November 15. The company has yet to earn any revenues, and in Q2 posted a loss of $588.82 million. (See Top Smart Score stocks on TipRanks)
When it comes to expanding its manufacturing, Lucid plans to “accelerate approximately $350 million of planned capex investment from future periods into 2021-23 and to otherwise enhance manufacturing capabilities by expanding overall capex investments by 6-7% during 2021-2026.”
The company expects to launch its electric SUV, Lucid Gravity, in the second half of 2023 and intends to ramp up the production of Lucid Air in 2023 and 2024. LCID estimates vehicle volumes to be unchanged for 2023 and 2024.
Bank of America analyst John Murphy views LCID as the “Tesla/Ferrari of new EV automakers.” The analyst has a bullish stance with a Buy rating and a price target of $30 (31.6% downside) on the stock.
Murphy added, “As is the case with many AutoTech (EV) entrants, we do not anticipate material revenue inflection and EBITDA/FCF breakeven for LCID until 2024+.”
The analyst also pointed out that many “AutoTech entrants (LCID included) are still very much in the R&D and pre-revenue/ EBITDA/FCF stage; and as such, require an untraditional investment/valuation approach versus Auto incumbents… we would emphasize that these stocks are inherently much riskier investments than our traditional coverage”
Wall Street analysts, however, are cautiously optimistic about the stock with a Moderate Buy rating based on two Buys, and one Sell. The average Lucid Group price target of $23.33 implies approximately 46.8% downside potential to current levels, again raising the possibility that the stock has overshot its valuation.
Bottom LineWhile analysts are in a wait-and-watch mode with Tesla, they are cautiously optimistic about Lucid Group. Currently, it seems both the stocks are overvalued. While Lucid is a relatively new entrant and Tesla is an established EV incumbent, it appears that both are positioned at an exciting phase in the EV business.
Tesla is seeing strong demand for its EVs but in the face of supply chain challenges, has still been able to keep its factories running. Lucid, on the other hand, is also witnessing a strong demand for its luxury sedan, Lucid Air Dream edition.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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