Long-term investing is the key to sustainable returns in the stock market. However, with shares down 85% over the last three years, Lucid Group (NASDAQ: LCID) highlights the risk of putting all your eggs in one basket. The once-promising automaker has shed value because of challenges like overvaluation and cash burn in the competitive electric vehicle (EV) market.
Now, with a market cap of just $9 billion, Lucid's small size sets it up for potential multi-bagger returns if management can turn things around. Let's dig deeper to see what the next three years have in store.
Chaos can create opportunities
The top financial story so far in 2025 is President Donald Trump's trade policy, which culminated on April 2 with the announcement of massive "reciprocal" tariffs on various countries. While the final numbers are still being negotiated, there is more clarity in the automotive industry, where a 25% tariff on imported cars is now in effect (along with a complex web of levies and discounts to account for parts made outside the U.S.).
Lucid looks like a clear winner in this scenario because its U.S. cars are assembled at its factory in Casa Grande, Arizona. Furthermore, its secondary facility in Saudi Arabia could help the company dodge any retaliatory trade restrictions other countries may level at the U.S.
To be fair, no car is totally American-made. The Kogard School of Business ranks Lucid's Air Sedan at 73 on its total domestic content index. This number puts Lucid ahead of rivals such as the Porsche Taycan or BMW i7, which are both manufactured in Germany, although it falls short of Tesla's Model S, which scores an 80 on Kogard's index. Lucid's domestic content could give it a massive lead over its imported rivals, and help the company focus on beating Tesla in the domestic market.
Tesla's weakness is a massive opportunity for Lucid
For Lucid, Trump's election victory may be a gift that keeps on giving -- especially as Elon Musk (the CEO of major rival Tesla) made the ill-fated decision to be publicly involved with the administration. This decision has led to consumer backlash, sending deliveries in Tesla's "other models" segment (the Model S, Cybertruck, and Model X) down 24% to 12,881 units. Lucid competes directly with these higher-end Tesla offerings.
Image source: Getty Images.
While Musk has vowed to step away from politics, only time will tell. Furthermore, it is unclear if the backlash will even abate. Early data shows that the company's sales are still declining in the European Union despite the new Model Y refresh, and similar trends may emerge in the U.S.
The next three years will be challenging
Despite enjoying some positive trends, Lucid isn't out of the woods yet. First-quarter earnings show that the business is still struggling to survive. While Q1 revenue increased 36% year over year to $235 million, this wasn't enough to defray production costs over overhead expenses, leading to an operating loss of roughly $692 million.
With a combined $3.6 billion in cash and equivalents on its balance sheet, Lucid has enough liquidity to sustain this level of cash burn for several more quarters. However, eventually it will need to turn to other sources of capital, such as equity dilution, which will reduce current shareholders' claims on the business and likely hurt the stock price.
Over the next three years, Lucid's future will depend on achieving economies of scale through new products like the Gravity SUV, which has helped it break into the lucrative SUV market. By 2028, Car and Driver believes it will release its new Lucid Earth, designed to take on the mass market with a starting price of less than $50,000 compared to the Gravity's $81,500. Investors may want to wait for more clarity on this model before considering a position in Lucid's stock.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft and Porsche Automobil Se. The Motley Fool has a disclosure policy.
