Electric carmaker Lucid Motors (LCID) went public on the Nasdaq in July, growing quickly to more than $90 billion in market capitalization (through mid-last month). The stock has given back about one-third of its gains since then, but still retains a market valuation of $63 billion — not as much as Ford or General Motors, but not bad for a start-up that plans to sell only 520 “Air Dream Edition” luxury electric sedans in its first production run.
Lucid raised about $4.5 billion in cash from its public offering in July — but apparently that wasn’t quite enough cash to make its dreams of growing production from the hundreds of cars into the thousands, and tens of thousands, a reality. On Thursday, Lucid announced plans to sell $1.75 billion convertible senior notes due 2026 in a private offering. If underwriters exercise their overallotment options, the company could conceivably raise in excess of $2 billion in new cash.
Lucid’s sudden cash grab, coming so quickly on the heels of its IPO, shocked the stock market, and sent Lucid shares tumbling more than 18% on Thursday. Not everyone was dismayed, however. Morgan Stanley analyst Adam Jonas makes the case that despite the stock market’s reaction, Lucid’s decision to “tap the convert market” was a “wise decision” on Lucid’s part.
Mind you, Jonas is no Lucid fanboy — far from it. His rating on the electric car stock is only “in-line” (i.e. Hold), and his price target on Lucid stock is a lowly $16 a share (or less than half what the stock sells for today, raising the obvious question of whether when he says “in-line” he actually means “cut bait”). (To watch Jonas’ track record, click here)
Yet even so, Jonas argues that from a practical — nay, Machiavellian — point of view, it makes sense for management to parlay its overpriced stock into some cold hard cash that it can use to grow its business. By “taking advantage of a strong stock price to transform an investor vote of confidence into real/hard dollars,” notes the analyst, Lucid is taking “a page right out of Tesla’s own book.”
Once Lucid completes its debt offering, Jonas believes the company may be able to expand both its manufacturing capability, and its stable of electric car models for sale. With the Lucid Air Dream edition retailing for $169,000, you have to assume there’s a limited market for this particular model.
As lower-cost Lucid models such as the Lucid Air and Lucid Air Touring come to market, Jonas sees the company selling as many as 15,000 units in 2022. For its part, Lucid projects sales of 20,000 units. And over the coming decade, the analyst believes the company could grow into a 400,000-car-a-year business by 2030. At Jonas’s projected 15% earnings before interest, taxes, depreciation, and amortization margin, applied to for example the cost of the company’s mid-range Air Touring model (MSRP $87,500) that might work out to EBITDA profits of perhaps $5.25 billion in 2030 — valuing the stock at about 12x 2030 EBITDA.
Jonas may not be prepared to recommend buying Lucid stock at its current price, but check back 10 years from now and we’ll see how Lucid is doing then. (See LCID stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.