Teslaone of the largest companies in the world with a market cap of over $1 trillion, is still a viable investment opportunity. But investors who correctly identify the next Tesla could make the biggest gains when investing in electric vehicle (EV) stocks.
Quite a few metrics suggest Lucid Group(NASDAQ: LCID) possibly the diamond in the rough you're looking for, even if you have as little as $200 to invest right now. Why? Because the whole business is still valued under $10 billion, although it doesn't take much imagination to see the EV company one day worth at least $100 billion.
But before you jump in, make sure you understand two things about the company.
Despite a big increase in sales since 2021, most of Lucid's growth journey remains ahead. That is mainly because EV sales in the US are still a share of overall auto sales.
According to data collected by the US Energy Information Agency, only 7% of US car sales are currently electric models. That's down from a peak of 8% in 2024, but still up significantly from 1% in 2018.
Where do electric vehicle sales go from here? Analyst expectations are all over the place, but almost all predictions trend in the same direction: up.
Global S&Pfor example, believes that despite some struggles in 2024, the next few years should be seismic for electric vehicle production and demand. “The auto industry's transition to EVs is accelerating,” said a recent report from the organization.
That report predicts that 2026 will be a tipping point for electric vehicle demand, resulting in 25% of cars sold in the US being electric by 2030. So if S&P Global is correct, sales of electric vehicles should more than triple over the next five years.
In many ways, Lucid is in the right place at the right time. The failures of a long list of electric vehicle manufacturers were mostly attempts to compete in a world where there was little demand — below 1% of total car sales.
Today, EVs have a foothold in the market, and most people know someone who owns one, if they don't own one themselves. And as most forecasts predict, this foothold will only strengthen over time. We're no longer waiting for the EV market to take shape – it's already here, with plenty of growth still ahead.
Lucid has done an admirable job keeping up with demand. Its sales grew around 70% year over year last quarter after growing around 90% the previous quarter.
For 2024, analysts expect companywide sales to be $778 million. For this year, however, they predict a 118% increase in sales, reaching $1.69 billion.
The fuel for this growth is its Air sedan, and its new Gravity SUV, which started production a few months ago. Both of these models are priced between $70,000 and $100,000, depending on options.
So while the company can't yet tap into the mass market, it has proven that it can produce top-of-the-line luxury models with enough buyer appeal to generate more than $1 billion in sales in a single year.
Lucid is on a promising track. It now has two luxury EV models in production, and its sales base is expected to grow significantly in 2025 alongside growing industry demand for EVs in general, a trend that may not stop for several decades. But there's one number I'll be paying close attention to on February 25, the next time Lucid reports quarterly earnings: gross margins.
Due to Lucid's rapid sales growth, the market has given it a premium valuation of 10 times sales. Tesla, for example, trades at closer to 14 times sales, while fellow electric vehicle maker Rivian trading at just 3.3 times sales.
There are many differences between these three companies, but perhaps the biggest is their varying ability to generate a profit on each car they sell. Tesla has generated positive gross profit for over a decade. Rivian has struggled to achieve positive gross margins despite $5 billion in sales last year.
As a smaller competitor, Lucid gets the benefit of the doubt for now. But if you jump into this growth stock, monitor its profitability closely. Over the next few quarters, expect to see its gross profit trend closer to where Rivian is today.
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Ryan Vanzo does not have a position in any of the stocks mentioned. The Motley Fool has positions in Tesla and recommends it. The Motley Fool has a disclosure policy.
