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Buy Lucid Stock as an Acknowledgement That Mass Adoption Is Hard

Investor Place · 09/24/2021 09:36

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Among the electric vehicle investments out there, Lucid (NASDAQ:LCID) probably generates the most debate. Some see it as an opportunity to buy Tesla (NASDAQ:TSLA) back before its shares became an instrument to mint millionaires. Others view LCID stock as a purely aspirational wager and therefore not worth its extraordinary premium.

A photo of the Lucid Motors Air EV from 2018.
Source: ggTravelDiary / Shutterstock.com

Personally, I’ve been generally bullish on Lucid because of its “honest” economics. When I listen to other EV entrepreneurs — including Tesla CEO Elon Musk — so many of them are talking about building a budget-friendly vehicle. I appreciate the sentiment, as do many other EV fans who may not quite have the funds to buy a Model 3.

Keep in mind that the median weekly wage for Americans ages 16 and over who are employed full time is only $373 as of the first quarter of 2021. So budget friendly will have to be extremely friendly indeed for the narrative — that EVs are usually toys for the rich — to change.

What I like about LCID stock is that the underlying company isn’t holding back any punches. True, lithium-ion battery pack costs have declined significantly since 2011, when they cost $917 per kilowatt hour. In 2020, this metric was $137, and by 2023, it could be as low as $101.

It’s a compelling argument that battery pack costs may become low enough that budget EVs are possible. However, Lucid sees that — ironically enough — as an aspirational forecast. Instead, its business model centers on catering exclusively to a consumer demographic that can afford luxury EVs.

And that’s what makes LCID stock so enticing, in my view. In terms of forward-looking narratives, Lucid makes the least number of assumptions per Occam’s razor. Put another way, even if battery costs don’t decline or if median wages don’t rise, these factors aren’t relevant to Lucid.

LCID Stock Allows You to Go Back in Time

In my research for Lucid’s potential, I came across an interesting story. Bank of America analyst John Murphy gave LCID stock a bullish outlook, assigning a $30 price target on the equity unit. When the market opened on Sept. 23, Lucid shares were trading hands at $25.57; thus, this estimate is good for a 17% move higher.

But that’s not what caught my attention. After all, analysts generate price targets all the time — that’s their job. Rather, I was intrigued at the justification. In an interview with Yahoo Finance Live, Murphy stated that LCID stock is somewhat of a combination between Tesla and Ferrari (NYSE:RACE).

I can understand why: Lucid features the engineering acumen of Tesla while attempting to spark the luxury and exclusivity of Ferrari. Like I said, it’s interesting.

Now, I’m no John Murphy, but if you want my take — it’s a rhetorical question, I’m going to give it to you anyways — I’d compare LCID stock to hypothetically being able to buy Ford (NYSE:F) more than a century ago, assuming that Ford were a publicly traded company at the time. (The company went public in 1956 in what was at the time the largest initial public offering in history.)

Why Ford? As I mentioned in my prior analyses of LCID stock, back when the combustion-based automobile arrived on the scene, it represented the same groundbreaking innovation that EVs do today. Per my research, I demonstrated that the rate of integration between EVs and early combustion cars is very similar.

Indeed, it took many years from the introduction of combustion cars to the point where any working individual could reasonably afford a decent example. And that’s why I’m optimistic about LCID stock. I think Lucid’s management team is absolutely correct: likely, it will take many years before fully functional EVs — I’m not talking three-wheeled electric trikes — can meet the average car buyer’s budget.

The Clock Is Set Just Right

For full disclosure, I own Ford shares, so an element of bias exists in mentioning this stock. However, my motivation is merely that Ford is an American icon. Whether Lucid becomes iconic in a similar fashion remains to be seen. However, I don’t think there’s any question about the EV firm’s business strategy.

While we’d all like to see EVs become accessible to everyday folks, it’s not realistic for the time being. If EVs were too pricy at a battery pack cost of $137 per kilowatt hour, I doubt that a dip to $101 will be the differentiating factor.

Because you must figure that EVs require a different mindset and the deployment of different infrastructure. These adjustments are able to be made by rich folks much more easily than those with lesser means.

I’m not trying to be a downer on mainstream EV integration. Instead, I just like to work with reality. Fortunately for stakeholders of LCID stock, the leadership team has the right perspective.

On the date of publication, Josh Enomoto held a LONG position in F. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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