Lucid Group vs. Canoo: Which Electric Vehicle Stock Is a Better Choice?

Several stocks part of the electric vehicle (EV) industry had a spectacular run in 2020. While these companies have underperformed the broader markets year to date in 2021, the accelerated shift towards clean energy solutions make them intriguing for long-term investors.

EV manufacturers are expected to gain massive traction in the upcoming decade which suggests companies such as Lucid Group (LCID) and Canoo (GOEV) are well-positioned to derive outsized gains for investors with a high-risk appetite.

Companies part of this disruptive space will stand to benefit from federal benefits, such as subsidies. Further, as EV manufacturing gains pace all around the world, factors such as economies of scale will come into play, allowing market players to improve the bottom-line at an enviable pace.  Given these factors, let’s see which of these two EV stocks should be part of your portfolio today.

Lucid Motors is making all the right noises

A California-based EV manufacturer, Lucid Motors merged with Churchill Capital, a special purpose acquisition company (SPAC) for a Pro-forma equity value of $24 billion. LCID stock started trading on the NASDAQ on July 26 this year and gained close to 20% in market value on the first day. It is currently valued at a market cap of $39 billion but shares are also down over 60% from all-time highs.

Lucid Motors is yet to generate any meaningful sales but is on track to ship its first luxury electric vehicle called the Lucid Air. The shipments should begin in Q4 of 2021 and the company has disclosed its pre-orders for its Lucid Air portfolio is 13,000 which will help it generate over a billion dollars in sales.

Similar to other EVs, Lucid Motors continues to allocate significant resources towards capital expenditures and the company expects to invest around $350 million over the next two years to enhance manufacturing capabilities. Lucid Motors expects to end 2023 with a manufacturing capacity of 53,000 units.

The Lucid Air is projected to have a range of more than 500 miles on a single charge which is on par with industry peers.

It’s difficult to value Lucid Motors stock due to its lack of earnings and revenue visibility. But investors will closely follow the company’s ability to produce and ship EVs at a consistent pace.

Canoo is valued at a market cap of $1.7 billion

A mobility technology company valued at a market cap of $1.7 billion, Canoo designs and manufactures EVs for commercial and consumer markets in the U.S. It offers B2B vehicles, multi-purpose deliver vehicles and lifestyle vehicles that target small and medium businesses, independent contractors, service companies, retailers, fleet managers and others.

Analysts expect Canoo’s sales to rise from $2.55 million in 2020 to $52.29 million in 2022 indicating a forward price to sales multiple of 32.5x.

Similar to most other early-stage EV start-ups, Canoo remains unprofitable and reported an operating loss of $104.35 million in Q2 of 2021. Comparatively, its net loss surged 385% year over year to $563.57 million in the June quarter.

The verdict

Investing in Lucid Motors and Canoo carries significant risks, given that the two companies are expected to book net losses for several quarters. This in turn could lead to constant capital raises, resulting in shareholder dilution. The two stocks already command billion-dollar valuations, with little or no revenue, and will lose significant market value if they underperform in a single quarter or provide less than impressive guidance.

However, between the two, I believe Lucid Motors is the better bet at this time.  That’s because of investor optimism surrounding Lucid Motors and the recent pullback in its stock price.

LCID shares were trading at $24.40 per share on Monday morning, down $0.21 (-0.85%). Year-to-date, LCID has gained 143.76%, versus a 16.89% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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