EV startup Lucid recently received a rating from Wall Street, and while it wasn’t a Buy, RBC analyst Tom Narayan has proposed an intriguing idea for the company to unlock value: licensing its technology.
Narayan initiated coverage of Lucid on Friday, giving the stock a Hold rating along with a price target of $6.
Typically, Hold ratings do not have a significant impact on stock performance. However, Lucid has seen a slight uptick in premarket trading, with a 0.3% increase to $6.02 per share. Meanwhile, futures for both the S&P 500 and Nasdaq Composite have dipped by 0.2%.
Narayan’s report offers some interesting insights that investors should consider. He asserts that Lucid is a technology leader, drawing on an unbiased comparison of efficiency and research conducted by Munro & Associates. Munro is a well-known automotive consultant renowned for conducting meticulous teardowns of vehicles to assess manufacturing and product technology.
Although Lucid’s electric vehicles (EVs) deliver impressive range per unit of battery capacity, this alone hasn’t been sufficient to drive sales. Quarterly sales for Lucid peaked in the fourth quarter of 2022 at 1,932 units but have since settled at around 1,400 units for both the first and second quarters. Narayan notes in his coverage initiation report that while Lucid’s branded products are enticing, they currently lack the necessary traction and momentum to command substantial value in the market.
Lucid’s Technology Licensing Potential
Lucid, an electric vehicle (EV) company, has explored the option of licensing its technology as a means of generating value. Analysts estimate that this move could potentially be worth up to $15 per share. This theoretical math suggests that mass-market automakers could see a significant increase of 50% to 70% in their EV operating profits by adopting Lucid’s technology.
While this projection may seem ambitious, a 50% improvement in operating profit margins is no small feat. If Lucid were to license its technology at $15 per share, the company’s value would be approximately $35 billion. This valuation would make Lucid over twice as valuable as automotive parts giant Magna International and autonomous driving technology company Mobileye.
To demonstrate the viability of this idea, Lucid has already licensed its technology to Aston Martin. However, it is important to note that Aston Martin is a niche automaker and does not generate free cash flow. Consequently, their shares have experienced a decline of over 90% in the past five years.
Analysts have been closely following Lucid and its potential. Baird analyst Ben Kallo recently launched coverage with a Hold rating and a $7 price target. As of now, 15 analysts cover Lucid stock, with approximately one-third (33%) rating the shares as Buy. Comparatively, the average Buy-rating ratio for stocks in the S&P 500 is around 55%. The average analyst price target for Lucid stock is approximately $7.40 per share.
Unfortunately, Lucid’s stock has seen a decline of around 60% over the past year. Factors such as rising interest rates and slowing sales growth have dampened investor enthusiasm. Nonetheless, Lucid continues to explore opportunities to leverage its technology and create value in the ever-evolving EV industry.
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