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Teslaone of the largest companies in the world with a market capitalization exceeding $1 trillion, still remains a viable investment opportunity. But investors who correctly identify the next Tesla could make the biggest gains investing in electric vehicle (EV) stocks.
Many indicators suggest Lucide Group(NASDAQ:LCID) this may be the diamond in the rough you’re looking for, even if you only have $200 to invest right now. For what? Because the entire company is still valued at less than $10 billion, although it doesn’t take much imagination to see the electric vehicle company one day being worth at least $100 billion.
But before you jump in, make sure you understand two things about the business.
Despite a sharp increase in sales since 2021, the bulk of Lucid’s growth journey remains ahead of it. It is mainly because VE Sales in the United States represent only a small portion of overall car sales.
According to data compiled by the U.S. Energy Information Administration, only 7% of U.S. car sales are currently electric models. This is down from the peak of 8% reached in 2024, but still a considerable increase from the 1% reached in 2018.
Where do electric vehicle sales go from here? Analyst expectations are all over the place, but almost all forecasts point in the same direction: upwards.
Global S&Pfor example, believes that despite some difficulties in 2024, the next few years should prove seismic for both the production and demand of electric vehicles. “The auto industry’s transition to electric vehicles is accelerating,” says a recent report from the organization.
This report predicts that 2026 will mark a turning point for demand for electric vehicles, leading to 25% of cars sold in the United States being electric by 2030. So, if S&P Global is correct, sales of electric vehicles are expected to increase than triple over the next five years.
In many ways, Lucid is in the right place at the right time. The failures of a long list of electric vehicle makers were largely attempts to compete in a world where demand was minimal — less than 1% of total car sales.
Today, electric vehicles have gained a foothold in the market and most people know someone who owns one, if they don’t own one themselves. And as most forecasts predict, this grip will only strengthen over time. We’re no longer waiting for the electric vehicle market to take shape: it’s already here, and there’s still plenty of growth to come.
Lucid has done a commendable job of meeting demand. Its sales grew about 70% year-over-year last quarter, following growth of about 90% the previous quarter.
For 2024, analysts expect company-wide sales to be $778 million. However, for this year, they expect sales to increase by 118%, to $1.69 billion.
This growth is fueled by its Air sedan and its new Gravity SUV, production of which just started a few months ago. These two models cost between $70,000 and $100,000, depending on options.
So while the company can’t yet tap into the mass market, it has proven capable of producing high-end luxury models attractive enough to buyers to generate more than $1 billion in sales in one single year.
Lucid is on a promising trajectory. It now has two luxury electric vehicle models in production and its sales base is expected to grow significantly in 2025, alongside growing industry demand for electric vehicles as a whole, a trend that won’t stop until potentially several decades. But there’s one number I’ll be paying close attention to on February 25, the next time Lucid reports its quarterly results: gross margins.
Due to Lucid’s rapid sales growth, the market has assigned it a valuation of more than 10 times sales. Tesla, for example, trades at nearly 14 times sales, while fellow electric vehicle maker Rivien trades at just 3.3 times sales.
There are many differences between these three companies, but perhaps the biggest is their varying ability to generate profit on each car sold. Tesla has generated positive gross margins for over a decade. Rivian has struggled to achieve positive gross margins despite generating $5 billion in revenue last year.
As a smaller competitor, Lucid is getting the benefit of the doubt for now. But if you’re jumping into this growth stock, keep a close eye on its profitability. Over the next few quarters, expect to see its gross margins get closer to those of Rivian today.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds positions at Tesla and recommends it. The Mad Motley has a disclosure policy.
