Will Lucid Group be worth more than Tesla by 2040?

The electric vehicle (EV) market is heating up as new players and historic automakers rush to gain a foothold in this exciting industry.

You’re here (NASDAQ: TSLA), the clear market leader, is pulling all cylinders – reporting its highest revenue and net profit in company history in the second quarter of 2021. Meanwhile, the electric vehicle company in full swing boom Lucid group (NASDAQ: LCID) has yet to reach mass production of its luxury sedan, the Lucid Air. However, Lucid claims the Air can go hand in hand with the Model S, Daimler‘s (OTC: DDAI.F) Mercedes-Benz S-Class range and other luxury brands such as Porsche, Audi and Tata Engines‘Jaguar.

Twenty years ago, oil ruled the world and Tesla was not even incorporated. Twenty years from now, the leadership of the automotive industry could be very different from today, especially if electric vehicles outnumber traditional internal combustion engine (ICE) vehicles in key markets. Let’s compare Lucid to Tesla to see which company could be worth more by 2040.

Tesla’s transformation in five years

Tesla, the world’s most valuable automaker, is worth $ 737 billion as of this writing. Exactly five years ago it was worth less than $ 30 billion. For comparison, Lucid is currently worth around $ 32 billion.

So how did Tesla increase its market cap 25-fold in just five years? Much of this is due to a 180-degree shift from widespread investor pessimism that the company might fail to widespread optimism that the company can’t do anything wrong. Tesla’s valuation reflects an idealized scenario in which the company matches its production volumes with those of other major automakers, but maintains high gross margins, a scorching growth rate, and generates cash from other sources. than car sales.

To be fair, Tesla is a much better company today than it was just a few years ago. It has gone from systematically missing production forecasts, struggling to maintain profitability and showing uneven quarters to become a global success with rapidly growing revenue, good gross profit margin and positive annual net profit in 2020. In To sum up, Tesla’s parabolic stock price rise is the result of a shift in investor sentiment, the belief that a transition from ICE cars to electric vehicles is imminent, and Tesla showing real growth of its turnover and results.

TSLA Revenue Data (Quarterly) by YCharts

To illustrate Tesla’s growth, consider that the company produced nearly five times more vehicles in 2020 than in 2017. In the first half of 2021, Tesla produced just over 387,000 cars, compared to 510,000 in the all of its 2020 record. And it generated more than $ 1 billion in second-quarter profits, more than any full year in the company’s history.

Despite these excellent results, Tesla is a growth stock that remains expensive according to traditional valuation measures. Its price-to-sales (P / S) ratio is 20, and its price-to-earnings (P / E) ratio is 383, which is by no means cheap. However, Tesla supporters believe that the first-mover advantage and the company’s global potential will allow it to achieve even higher valuation over time.

How Lucid could overtake Tesla

Lucid’s long-term plan is to operate three business segments: cars, energy storage systems, and technology, such as batteries sold to electric vehicle racing teams. The simple answer to how Lucid could catch up with or even overtake Tesla by 2040 would be that he needs to sell more cars, make more money, and grow faster. But overall, Lucid needs to establish branding and recognition, and more importantly, it needs to capture and maintain a technological advantage over its competition.

Tesla’s success really depends on its technology, design, and the performance of its cars. CEO Elon Musk is a controversial figure, and Tesla is known for mustering his fair share of ardent fans and people who can’t stand him. Despite its turbulent history, years of money consumption, production inefficiencies and an eccentric CEO, Tesla has always come out on top. The point is, investors will put up with just about anything for great technology and growth.

Lucid has built an incredible car and has received $ 4.4 billion in funding which he will use to expand his operations and mass-produce the Lucid Air. The company will likely need to raise more cash in the future, given that it doesn’t expect to make a profit in 2022. But it should have no problem receiving additional funding if it shows it can achieve its objective of delivering 20,000 Lucid Airs in 2022..

A few pivotal years

In today’s age of specialty acquisition companies and direct quotes, Wall Street has shown an insatiable appetite for throwing money at potential companies and hoping it will hold up. Lucid’s most valuable asset isn’t the Lucid Air 2022 or even his plans to produce the Lucid Gravity. Rather, it’s the innovation and creativity of the company, and its ability to push the boundaries to try to be the best automaker. The next year or two will be a pivotal time for Lucid. But if it can get started and prove its production prowess, continue to attract bookings and increase sales, then the company could get a lot bigger in the future than it is today.

The best buy

It is doubtful that Lucid could be worth more than Tesla by 2040. However, there is an argument that Lucid could be a better investment than Tesla by 2040. Looking at the potential of the two electric car makers, it seems more easy to imagine that Lucid could increase in value three times more than Tesla. However, it also seems much more likely that Lucid could collapse or even go bankrupt than that Tesla could be worth a fraction of what it is today.

In this context, investing in Tesla is the safest bet when it comes to the EV space. But Lucid is a higher risk and potentially more profitable option for those who want to invest in a younger business with more potential.