Gravity SUV Launch Will Strengthen Future Position In EV Market

Key Takeaways

• Launch of Lucid Gravity SUV and production ramp-up are expected to drive revenue growth and improve profitability through enhanced operational efficiency.
  
• Expansion in technology licensing, global presence, and advanced features aim to diversify revenue streams and strengthen market position.
  
• Leadership change and production constraints, coupled with regulatory, competitive, and liquidity challenges, could impact Lucid's market positioning and financial stability.

Catalysts

A technology company, designs, engineers, manufactures, and sells electric vehicles (EV), EV powertrains, and battery systems.

• The launch of the Lucid Gravity in the SUV segment is expected to drive significant growth, as the company anticipates strong consumer demand for this model, which could positively impact Lucid's revenue.
  
• Lucid's strategic focus on ramping up production and improving operational efficiency aims to enhance profitability, with expected significant improvements in gross margins as production scales in 2025, impacting overall earnings.
  
• Plans to expand Lucid's technology licensing and potential new technology monetization options are expected to create additional revenue streams, diversifying and potentially increasing future earnings.
  
• Continued global expansion efforts, including new sales studios and service centers in Europe, alongside distribution channel diversification, are expected to increase market penetration and drive revenue growth.
  
• Anticipated rollout of advanced driver assistance systems and new feature enhancements like hands-free driving could enhance product appeal and drive future revenue growth, while potentially improving net margins through technology leadership.

Lucid Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lucid Group's revenue will grow by 88.0% annually over the next 3 years.
• Analysts are not forecasting that Lucid Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Lucid Group's profit margin will increase from -357.2% to the average US Auto industry of 5.3% in 3 years.
• If Lucid Group's profit margin were to converge on the industry average, you could expect earnings to reach $308.7 million (and earnings per share of $0.08) by about July 2028, up from $-3.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.0x on those 2028 earnings, up from -3.1x today. This future PE is greater than the current PE for the US Auto industry at 15.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Lucid Group Future Earnings Per Share Growth

Risks

• The shift in leadership, with Peter Rawlinson stepping down, may introduce strategic uncertainties and affect investor confidence, possibly impacting future revenue projections and market perception.
  
• The company is currently production constrained, particularly with the new Lucid Gravity SUV, which could limit revenue growth potential if inventory levels cannot meet demand.
  
• Lucid faces regulatory challenges and potential impacts from upcoming tariff changes, which could affect its gross margins and cost structure.
  
• Competitors in the EV market are intensifying, which could make it more difficult for Lucid to maintain its market share and revenue growth without substantial marketing investments.
  
• The dependency on external financing and strategic investor support, such as the significant backing from the PIF, highlights potential liquidity risks and reliance on securing additional capital for operational expansion.

Valuation

• The analysts have a consensus price target of $2.677 for Lucid Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $1.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $308.7 million, and it would be trading on a PE ratio of 45.0x, assuming you use a discount rate of 11.6%.
• Given the current share price of $3.13, the analyst price target of $2.68 is 16.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.