Will Lucid Motors Stock Go Back Up or Slump Like SOFI?

Mohit Oberoi, CFA - Author

Jul. 30 2021, Published 8:50 a.m. ET

Lucid Motors (LCID) merged with Churchill Capital IV (CCIV), while SoFi (SOFI) merged with Chamath Palihapitiya’s Social Capital Hedosophia Holdings (IPOE). They were the two most hyped SPAC mergers in 2021. Both of the stocks are suffering from the post-merger blues and have slumped. Why is Lucid stock dropping and will it go back up?

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So far, SOFI and LCID are both following the same trajectory. The stocks gained sharply on the merger date but have looked weak since then. SOFI stock has continued to slump and now trades near the $15 price level. The stock had its moment when it was targeted by the Reddit group WallStreetBets. However, like all Reddit names, it has crashed after the initial euphoria.

Why is Lucid Motors stock going down?

Lucid Motors stock is now down almost 16 percent from its post-merger highs. There has been a commensurate fall in other EV stocks and Tesla is up over the period. While Chinese EV names like NIO and Xpeng Motors have slumped this week, it has more to do with China’s crackdown on tech companies and the resultant crash in Chinese stocks listed on U.S. markets.

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Since the macro environment has been supportive, the only reason we can attribute to the fall in Lucid Motors stock is its high valuation. Despite having slumped, it still commands a market cap of around $38 billion. The valuation is higher than that of Xpeng Motors, which has been producing and delivering cars.

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Is Lucid Motors stock overvalued?

Lucid Motors is the most valuable EV startup that's in the pre-revenue stage. Nikola and Fisker have a market cap of below $5 billion. Nikola’s deliveries are also expected in 2021—like Lucid Motors. Even if we apply a valuation discount to Nikola for the multiples issues that it's grappling with, the valuation gap looks astonishing.

Lucid Motors stock looks overvalued at these price levels. The one major aspect that markets have been ignoring amid the SPAC and EV mania is growing competition. We’ll have tight competition in the EV industry over the next two years. Apart from EV names like Tesla and Lucid Motors, we now have multiple new models from companies like Ford.

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EV competition

In its earnings release for the second quarter of 2021, Ford said that Mustang Mach-E was the second best-selling electric SUV in the U.S. It would be dangerous to write off legacy automakers from the EV race looking at their aggressive plans. Then, we have a flurry of EV startups launching their models over the next two years.

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Will LCID stock go back up?

Lucid Motors was trading lower in premarket on July 30. The stock could fall more from these levels before it goes back up. While Lucid has an attractive product proposition, the price and valuations look elevated to buy the stock now.

Will Lucid Motors be the next Tesla?

Many people are speculating whether Lucid Motors would be the next Tesla. Even Lucid Motors CEO Peter Rawlinson sees the EV industry as a two-horse race between itself and Tesla.

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While Lucid’s business strategy is similar to Tesla in multiple ways, the major difference between the two companies is Elon Musk's persona. While it's tough to quantify the valuation premium for Tesla for Musk’s leadership, it would be substantial.

While we might hate or love Musk, one aspect is undeniable. Tesla has reached its current level of success because of Musk. On a broader level, Tesla’s soaring market cap nudged automakers to take the electric car industry seriously.


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