Today, few are holding out on Lucid Group (NASDAQ:LCID) as a possible Tesla (NASDAQ:TSLA) in the making. As you may recall, the SPAC predecessor to LCID stock hit prices nearing $65 per share around two years ago, on expectations that this EV startup was going to be the ultimate Tesla killer.
Since then, changing economic and stock market conditions, coupled with company-specific challenges, have pushed LCID down to sub-$10 per share prices.
That said, as shares remain at rock-bottom prices, many investors may still find the stock appealing as a long-term comeback play. After all, even if it fails to become the next Tesla, further expansion over the next five years could send it to the moon again, right?
Not so fast. Taking a closer look, the stock remains at high risk of languishing for years in the stock market junkyard.
LCID Stock: Don’t Read Too Much Into Its Latest Rally
After dialing back expectations throughout 2022, investor confidence in Lucid Group seems to be growing once again. Given recent news out of the company, this makes sense. Earlier this month, the EV maker reported full-year production numbers for 2022 (7,180 vehicles).
As this figure came in ahead of its most recent guidance (between 6,000 and 7,000 vehicles), this may suggest that the supply chain bottlenecks that forced Lucid to cut back production targets several times have eased. Easing bottlenecks, coupled with the upcoming launch of a new vehicle (the Gravity electric SUV), may mean another massive jump in production and deliveries.
Per Barron’s, Wall Street analysts expect Lucid’s delivery numbers this year to grow more than five-fold, from 4,369 vehicles to 24,000 vehicles. Yet even as investors have become less pessimistic about LCID stock, enabling shares to zoom nearly 30% higher year-to-date, don’t assume this trend will continue.
Why? For one, while production may be set to ramp up, it’s unclear whether there is sufficient demand for Lucid to sell into. Second, even if the company successfully continues to scale up at a healthy clip, reaching profitability could remain elusive in the years ahead.
A Recipe for Underwhelming Returns
Although far cheaper than it was at its high-water mark, LCID stock is pricey relative to the company’s current operating results. Lucid at current prices sports a $16 billion market cap, against trailing 12 month losses of around $1.9 billion, and a tangible book value of $3.2 billion.
With most of its valuation still built on future potential, Lucid needs to knock it out of the park over the next five years, in order for the stock to move substantially higher. However, merely hitting current expectations may be tough to achieve.
As I pointed out recently, Rivian Automotive (NASDAQ:RIVN), another would-be Tesla killer, has a healthy preorder backlog. In contrast, Lucid’s reservation figures have been trending lower. While one of the possible reasons for this (a slowing economy) may ease after 2023, another possible factor (competition from both Tesla and incumbent automakers) may persist.
Worse yet, continued unprofitability could have a negative impact on the stock. It may result in additional dilutive capital raises, like the $1.5 billion offering completed in late December. This dilution could limit future potential returns.
Where Will Lucid Be in 5 Years?
Admittedly, it’s up in the air where exactly Lucid Group will be five years out. It appears highly unlikely this EV maker will come even close to hitting past lofty projections such as six-figure vehicle sales volume by 2025. Still, the company could nonetheless be producing and selling a far greater number of vehicles in 2028 than today.
Having said that, achieving triple-digit sales growth may not be enough to drive a comeback for LCID shares.
Rising competition could prevent Lucid from reaching the sales volume needed to reach profitability. If heavy losses and cash burn continue, the company may need to raise more cash. This could be highly dilutive to investors buying today.
Until more promising developments arise, err on the side of caution. Assume that LCID stock will stay in neutral, not accelerate, over the next five years.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.