Better EV Stock: Lucid Group vs. Nikola Corporation
Lucid (LCID -1.88%) and Nicholas (NKLA -1.92%) are both electric vehicle manufacturers that went public by merging with SPACs (Special Purpose Acquisition Companies). Both electric vehicle makers initially painted rosy long-term forecasts in their first investor presentations, but quietly rolled back those estimates after their public debut. As a result, Nikola and Lucid are now both trading below their initial post-merger prices. Should investors consider buying either stock now?
Can Lucid solve its production problems?
Lucid’s first luxury sedan, the Lucid Air, can travel up to 520 miles on a single charge, beating You’re hereit is (TSLA -0.13%) Model S Long Range over 100 miles. It’s headed by Peter Rawlinson, who was previously Tesla’s chief vehicle engineer from 2009 to 2012. Lucid notably targets more affluent customers than Tesla: the Lucid Air starts at $87,400, while the top-of-the-line Grand Touring model starts at $154,000.
Before its merger, Lucid claimed it could ship 20,000 vehicles in 2022. But in February, it reduced that target to 12,000-14,000 vehicles. In August, it halved that forecast to just 6,000 to 7,000 vehicles because it faced “extraordinary supply chain and logistics challenges”.
Lucid ended its last quarter with 37,000 bookings, which could potentially generate up to $3.5 billion in revenue, but it only delivered 125 vehicles in 2021 and 1,039 vehicles in the first half of 2022. As a result, Lucid may still struggle to deliver 6,000 vehicles this year to unless it significantly increases its production in the second half.
The AMP-1 plant in Lucid, Arizona has an annual production capacity of 34,000 vehicles, and it expects its Phase 2 expansion to bring its annual capacity to 90,000 vehicles next year. However, this increased capacity will be meaningless if it cannot solve its supply chain problems.
Will Nikola be able to regain the trust of his investors?
Nikola produces BEV (battery powered) and FCEV (hydrogen fuel cell) cargo trucks. Before its public debut, it claimed it could deliver 600 BEVs in 2021, followed by 1,200 BEVs in 2022. It also planned to start delivering its FCEVs in 2023. But in reality, Nikola only shipped its first two BEVs for a pilot program at the end of 2021.
Nikola founder and former CEO Trevor Milton also quit last year after he was personally targeted in securities and wire fraud investigations. Nikola’s current CEO, Mark Russell, has tried to distance himself from Milton, and the company also reached its own settlement with the SEC last December, but the allegations could further tarnish its reputation. General Motorswhich previously took an 11% stake in Nikola and planned to co-produce a consumer-facing Badger van with the company, also liquidated its entire position and abandoned that project in November 2020.
Nikola delivered 52 BEVs in the first half of 2022, and he says he remains “on track” to ship 300 to 500 BEVs for the full year. It has received more than 500 orders for its BEVs so far, and its plant in Arizona currently has an annual production capacity of 2,500 trucks. It expects its Phase 2 expansion to take that capacity to 20,000 vehicles (in two shifts) by early 2023.
How big are their losses?
Lucid only generated $27 million in revenue in 2021, but it posted a staggering net loss of $4.75 billion. In the first half of 2022, it generated $155 million in revenue, but still posted a net loss of $1.16 billion.
Assuming Lucid can hit its target of 6,000-7,000 shipments, analysts expect it to generate $758 million in revenue, with a net loss of $1.63 billion this year. Lucid still held $3.16 billion in cash and cash equivalents, as well as $1.14 billion in short-term investments, at the end of the second quarter — but it could burn through that cash quickly as it expands. That’s why it recently announced it would raise an additional $8 billion in a mixed offering to bolster its balance sheet.
Nikola didn’t generate any significant revenue in 2021, but he racked up a net loss of $690 million. It generated $17 million in revenue in the first half of 2022, but that still resulted in a net loss of $326 million. It ended the second quarter with just $529 million in cash and cash equivalents.
If Nikola can meet its delivery targets this year, analysts expect it to generate $111 million in revenue but still post a net loss of $816 million. That outlook looks bleak, but Nikola plans to keep the lights on by raising up to $400 million in an upcoming stock sale.
The evaluations and the verdict
Both stocks still look expensive after their post-merger decline: Lucid is trading at 37 times this year’s sales, while Nikola is trading at 21 times this year’s sales. These price-to-sales ratios may cool as they ramp up production, but their continued lags indicate that investors should temper their long-term expectations and forget about their pre-merger estimates.
I wouldn’t touch any of these EV stocks at this time. But if I had to pick one over another, I’d stick with Lucid because it attracts more bookings and has higher production rates.