Is the bear about to realize there’s nothing left in Lucid Group (NASDAQ:LCID) to feast on? That could be one way of interpreting Morgan Stanley analyst Adam Jonas’ latest assessment of the struggling luxury EV maker.
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Jonas has had a consistently negative stance on the stock, believing the company doesn’t have what it takes to thrive in a survival-of-the-fittest EV environment. But now, even Jonas concedes such is the depressed sentiment, there might not be anywhere lower left to drop.
“It’s difficult for us to see how 4Q introduces new negative information that a bearish consensus doesn’t already expect,” the analyst recently said. “Given the challenges to the stand-alone model, we wanted to stay ahead of the emergence of a potentially bullish thesis to the Lucid story.”
However, let’s be clear: Jonas hasn’t suddenly become bullish on LCID, cautioning investors that it remains “a start-up EV player with high upfront capex and R&D commitments.”
For instance, in F2024, Jonas anticipates that the combined capex + R&D costs will surpass its projected revenue. Meanwhile, the company still needs to demonstrate its ability to sell its vehicles at a price higher than the variable production costs.
“While we forecast a significant improvement in gross margin from negative 200% (FY23) to negative 50% (FY24) we still see LCID’s operations as dependent on external capital sources and forecast $1.5bn of external funding this year,” the analyst explained.
Consequently, Jonas rates LCID shares an Underweight (i.e. Sell) with a $4 price target. (To watch Jonas’ track record, click here)
Yet, as noted above, despite his continued skepticism, Jonas hints at a potential shift in sentiment. He notes, “While an environment of excess supply > demand for EVs ostensibly poses a challenge to LCID’s core business model as a vertically integrated EV player, we do entertain the possibility that LCID’s strategic value as an EV ‘partner’ may be rising.”
This could come in one of several forms. Given the company has developed a number of innovations in-house (such as its all-electric EV platform, proprietary powertrain technology battery pack, software and other “enabling technologies”), it could be a viable licensing partner.
Additionally, as Lucid is a “pure EV player” with products on the market, it possesses expertise in all the stages of EV development. This puts the company in a strong position to assist potential partners in effectively managing their EV strategies.
There’s also the prospect Lucid could become a tenant. In light of the reduced demand for EVs, legacy OEMs may be increasingly open to seeking partnerships, which could involve exploring options for leasing out EV production capacity to other entities who can make use of it.
Overall, this EV maker has attracted the notice of 9 Wall Street analysts recently and their reviews break down to 7 Holds and 2 Sells – for a Hold (i.e. neutral) consensus rating. LCID shares are selling for $3.71 and their average price target, standing at $5, indicates potential for ~35% gain over the course of this year. (See Lucid stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
