Lucid Motors: Saudi expansion could help stock price (NASDAQ: LCID)

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Lucid Motors Inc. (NASDAQ: LCID) plans to open a new manufacturing facility in Saudi Arabia, which will not only allow the electric vehicle company to enter promising new markets, but also diversify its manufacturing footprint.

With Q1 results just around the corner, I take a look at what investors can expect in terms of pre-orders and estimated order value. Lucid Motors stock is consolidating and the current correction could provide another opportunity to buy the stock.

The hype has faded, but the potential for Lucid Motors is huge

Lucid Motors stock began to rise after the electric vehicle company announced it would begin making deliveries to customers in October 2021. The stock hit new highs in November 2021, but investors were not sure. were quick to cash in, and Lucid Motors’ long-term potential in the EV market may now be undervalued. If the $20-21 support level holds, LCID could gain further momentum and rise once Q1 earnings and new pre-orders are released.

LCID stock price

LCID stock price (Finviz)

Lucid Motors is still impacted by the company’s revised production forecast, which has weighed on the electric vehicle maker since it was made public. In February, Lucid Motors revised its production forecast for the Lucid Air to a range of 12,000 to 14,000 units in 2022, effectively lowering its forecast from 6,000 to 8,000 EVs. Many investors were taken aback by the outlook, causing the stock to plummet.

That said, I think Lucid Motors’ long-term potential in the electric vehicle market is now significantly undervalued, largely due to the company’s plans to begin international production of the Lucid Air and to enter new markets.

Leveraging Lucid Motors’ Investment in Saudi Arabia

Earlier this year, Lucid Motors signed an agreement with Saudi Arabia’s Ministry of Investment that paves the way for the construction of Lucid Motors’ first manufacturing facility outside the United States.

Lucid Motors plans to produce up to 150,000 electric vehicles a year at its plant in King Abdullah Economic City in Saudi Arabia. Lucid Motors’ expansion strategy differs from that of other EV makers, which is likely due to the company’s production of high-end luxury EVs, which are likely to find buyers in the wealthy kingdom. cash.

While most EV makers focus on Europe and China as the first overseas markets, Lucid Motors is deviating from the proven expansion strategy. In doing so, the company is taking a significant risk at a time when it begins to ramp up production in the United States, but it also creates a significant opportunity to gain market share in a largely untapped market.

The Saudi government announced the “Saudi Green Initiative” a few years ago, calling for aggressive investments in green energy (including electric vehicles) and setting net-zero emissions targets for 2060. Saudi Arabia , an oil-rich country, has long attempted to diversify its economy, investing billions of dollars to transform the country into a tourist destination and investment hub.

Saudi Arabia could become one of the hottest markets for electric vehicles in the Middle East as the Kingdom invests more money in its electric vehicle infrastructure, a development that Lucid Motors could capitalize on.

By 2030, Saudi Arabia aims to have 30% of its vehicles electric. Saudi attitudes towards electric vehicles are also changing rapidly, making Saudi Arabia an attractive market for Lucid Motors, both from the perspective of investment (production) and potential sales.

Including the production capacity of Lucid Motors in Arizona, which is expected to reach 365,000 electric vehicles, the electric vehicle company could produce more than 500,000 electric vehicles per year once each facility reaches its estimated full production potential.

With an annual production capacity of 150,000 electric vehicles in Saudi Arabia and an average selling price of $100,000, Lucid Motors could generate $15.0 billion in sales from its new manufacturing center in Saudi Arabia alone. saudi.

Pre-order estimates for 1Q-22

Since Lucid Motors’ earnings date is not far off, I’d like to quickly include my estimates for pre-orders and estimated backlog value for 1Q-22. In February, Lucid Motors received over 25,000 pre-orders and added an average of 2,700 monthly new bookings to its backlog over the previous three months. Given that orders were strong in the prior quarter, I expect Lucid Motors’ backlog to reach 33-34,000 Lucid Air customer reservations by the time the results are released (end of May).

At an average sale price of $100,000, the estimated value of the backlog is $3.3-3.4 billion. The estimated backlog for all Lucid Motors models combined was more than $2.4 billion in February. Going forward, I wouldn’t be surprised if Lucid Motors added about $1.0 billion to the value of its backlog each quarter.

What could drive Lucid Motors stock down?

In February, Lucid Motors significantly reduced its production forecast. The market was unprepared for the revised production forecast and the stock fell. If Lucid Motors once again cuts its production forecast, the stock will struggle with investors. If the EV company encounters difficulties overseas, faces delays in international expansion, or is forced to raise EV prices, investors may react forcefully and avoid action.

My conclusion

Lucid Motors has a billion dollar sales opportunity in Saudi Arabia, but the stock doesn’t reflect it. The EV company’s expansion strategy differs from that of other EV manufacturers, which tend to prioritize markets with already high levels of EV adoption (Europe and China).

That said, I think this is a high-risk, high-reward strategy that further sets Lucid Motors apart from the EV competition.

Karen J. Nelson