At midday Tuesday, the shares of luxury electric vehicle (EV) maker Lucid Group (NASDAQ: LCID) were trading higher. As of noon ET, Lucid's shares had advanced approximately 6.3% from Monday's close.
On Tuesday, as investors reacted to economic developments like higher oil prices, Lucid was one of several electric car names riding a stock surge. However, at least one Wall Street analyst is not optimistic about Lucid's long-term prospects.
On Tuesday, there was no obvious news that caused Lucid's stock to rise. Other EV names including Hyzon Motors (NASDAQ: HYZN), Rivian Automotive (NASDAQ: RIVN), and Nikola (NASDAQ: NKLA) were all trading significantly higher by midday as well. The rally was likely due to higher oil prices, and perhaps a more moderate reaction to expected interest rate hikes.
One Wall Street analyst, on the other hand, predicts that Lucid will face significant barriers to its expansion. In a new note issued on Tuesday, Redburn analyst Charles Coldicott started coverage of Lucid with a neutral rating and a fair value estimate of $39.
While Lucid has a fantastic product and some genuinely cutting-edge powertrain technology, he thinks it may be worth less than the otherwise comparable Rivian, because it is more directly competing with category leader Tesla (NASDAQ: TSLA).
Apparently ignoring Lucid's plans to launch a large Air-based luxury SUV in 2023, he noted (accurately) that the global market for big sedans is skewed heavily to China at the moment, making it difficult for Lucid to enter the market in a significant way.
With respect to China, which is a market where Tesla already has a presence and is facing competitive local players like as Nio and XPeng, Coldicott's approach makes sense.
However, Lucid's chances against Tesla elsewhere in the world may not be what Coldicott predicts. It appears to be difficult for certain EV-focused investors and analysts to grasp this, but Tesla will soon face intense competition from so-called legacy worldwide automakers. Because the worldwide EV market is nearing maturity, Tesla's share of it is expected to plummet over the next several years, even as its own sales continue to increase.
Lucid will undoubtedly be confronted by the same competitive challenges as Tesla. Of course, Lucid's goods and technology will give it a good chance of becoming a sustainably profitable manufacturer of distinctive, high-end EVs with industry-leading range. It is hard to predict to at this time if Lucid will grow into its lofty valuation.