Forecast: Lucid will soon shift up a gear

There are few investment opportunities as exciting as electric vehicle startups as the world moves away from gasoline-powered vehicles. These startups have the potential to ride the wave of rising sales over the next decade, even if the pace in the U.S. is slower than originally expected.

But Lucid Group (LCID -5.99%)As many vehicle startups have learned over the years, developing, manufacturing and delivering vehicles is a huge challenge. But there is good news for investors, as deliveries are picking up and the potential market for the upcoming Gravity SUV is bigger than some think.

How it all began

There has been a consistent trend for Lucid investors over the past few years: disappointment. Although Lucid makes arguably one of the best and most luxurious electric sedans, sales left a lot to be desired. The automaker languished toward the end of 2023, delivering just 1,734 vehicles in the fourth quarter, down 10% from the previous year.

For all of 2023, Lucid delivered just 6,001 of the 8,428 vehicles produced, which was slightly more than in 2022, when it delivered 4,369 of the 7,180 vehicles produced. This was a little disappointing considering that Lucid had launched the cheapest version of its Air sedan in October and also reduced the price of its all-wheel-drive trim. EV start-up competitor Rivian Automobiles For comparison: In 2023, 50,122 vehicles were delivered.

On the rise

Fortunately, Lucid's cheaper trim and price cuts have built momentum in the first half of 2024, and the upcoming Gravity SUV has a much larger market that should help shift the company's deliveries to higher levels.

“We believe the total addressable market for Gravity is six times larger than Lucid Air,” Lucid CEO Peter Rawlinson said in an interview with Yahoo! Finance's Pras Subramanian. Rawlinson couldn't resist praising the company's technology:

We are much further ahead than Tesla is. We took on that role. When I was at Tesla, Tesla was the technology leader. They got distracted and we took that place.

Not only will the Gravity SUV operate in a more popular segment than the Air sedan, but it will also have a starting price of under $80,000, opening the doors to consumers who couldn't or didn't want to afford the Air sedan, which could be priced as high as $250,000 in the Sapphire trim level.

Lucid is also finishing up a factory in Arizona that will produce up to 90,000 vehicles per year. If the price reductions on Air and Gravity, with its larger market, can absorb that capacity in the future, it will go a long way toward improving the company's size and finances.

Investors must be careful

History is full of hundreds upon hundreds of failed automaker startups. A recent example was rival EV startup Fisker, which had to file for bankruptcy after supply issues. For investors, it's fun to look for the next Tesla – that's part of the challenge – but it's important to remember that despite the deep-pocketed Saudi backing, Lucid remains highly speculative and investors should limit any investment to a small portion of their portfolio.

But those warnings aside, Lucid has beaten delivery estimates in the first two quarters of 2024 after largely disappointing in 2023. If its Gravity SUV appeals to part of a much larger target market, its prospects could really be taken to the next level.