Lucid Group recently came public via a SPAC and has taken the market by storm
this back is actually up since its merger was completed which puts this company in
rare air but is lucid stock a buy we recently did an
hour-long deep dive into this company here's an overview of what we found out
to give you an idea of just how well this electric car company has done it's worth $69 billion today
that's more than Honda and the company's ticker is lcid lucid's mission is to inspire the adoption of
sustainable transportation by creating captivating electric vehicles centered around the human
experience while i think the mission statement is way too long this is a mission driven company
and the company's core product is dubbed the lucid air there are four different versions
ranging from about seventy five thousand dollars to well over a hundred thousand dollars
as for the business model this company reminds us a lot of tesla it's chosen to go via a direct to
consumer route so you can go online and order one of the company's cars however they didn't abandon
brick and mortar altogether they do have showrooms to connect with customers and build brand value
and as for a charging network the company has partnered with Electrify America in order to be
able to charge its vehicles nationwide now because they're just started delivering vehicles it's hard
to know what customer acquisition costs will be like but we assume since the brand is so important
that it will be very high initially this company will be delivering its vehicles to the wealthy
end of a growing market so for the near term its revenue is likely to be recession resistant
however over the long term it's likely to follow the natural cyclicality that comes with auto sales
and because these are mostly one-off purchases there is no recurring revenue that investors can
count on the moat that we identified early on is the company's brand name it's lucid air did win
motor trunk car of the year which is a big plus for this business given that award and the fact
that the company has shown a steady backlog of people wanting to buy these cars we think that the
moat is likely expanding since the company hasn't delivered any cars it doesn't have any revenue to
speak of given that the company is losing money hand over fist that said one thing we were really
impressed with was this company's balance sheet it has $4.8 billion dollars in cash no debt and it
recently held a secondary offering that raised an additional $2 billion in senior convertible note
and no surprise to you that its current returns on capital are negative and will likely remain
so for many many years to come lucid's original founder sam wang and bernard are no longer with
the company instead the company's corner office is occupied by peter rawlingson a former tesla
employee who helped work on the model s he's been with the company for seven years including two as
a company's ceo employees on glassdoor.com give the company solid if not inspiring reviews on the
downside inside ownership here is very low sub 1 on the plus side that is more than $600 million
still not high at all on a percentage basis now when it comes to the company's optionality we see
lots of room for growth much like tesla this company started with its lucid air and already has
plans to expand into suvs we think that there's a lot of room for this company to create new
vehicle categories and when it comes to operating leverage few companies have as much promise as
lucid that's mostly because it can't get any worse than it is right now when it comes to the
company's addressable market the electric vehicle market is enormous some people say $300 billion
others have pegged it at near a trillion right now the company has just started delivering vehicles
meaning the sky is the limit and there is good news that this company's growth will likely be
100% organic for the foreseeable future now when it comes to the stocks performance there is a
couple different ways to calculate this because it was a spec we could go from when the spac
started we decided to use when it despac'd and became lucid motors either way since then it is
performed very well returning 57 which spanks the market the company has only reported earning once
but that earnings report was favorable as the company lost less money than it was expected to
and no surprise here the company is not focused on buybacks paying down its debt or offering up a
dividend turning to risks and boy are there a lot of risks here how about we start with competition
this company is not the only electric car maker in town and it has numerous competitors that it has
to worry about now we assume that dilution will be a major factor moving forward because car makers
have to raise a lot of funds in order to reach a scale that they can profitably manufacture cars
there's also some geopolitical risk here that's worth noting lucid group's largest shareholder is
a Saudi Arabia Sovereign Wealth Fund if anything was to happen to the relationship between lucid
group and the saudis this company's stock could get really hurt and there are outside forces to
worry about as well as we said we expect elusion to be a major force that means that the company
needs a high stock price in order to favorably raise funds finally this company trades at an
astronomical valuation this company is currently worth more than Honda motor even though it just
started delivering its first vehicles so what are we going to look for moving forward well the first
and most obvious thing is to look for deliveries proof that these cars are ending up with customers
second we want to see this company's gross margin eventually turned positive initially it's going
to be very very bad number but over time with scale we want to see this gross margin rise
and rise fast and finally as with any super capital intensive business we want to keep a close
eye on that balance sheet it's very healthy right now but it needs monitoring so i had this company
score on our investing checklist no surprise here this is an extremely risky stock so this
company scored very poorly on my checklist same story here on my checklist a score of a 3.5 means
that i think this company is fragile and if you look at all the dynamic forces at play here this
is a fragile company well there you have it we wish this company nothing but success but this
is an extremely risky company right now if you want to see our full deep dive video on
how we came up with this information click the link you see on your screen brian's out