Lucid (LCID) Falls as Morgan Stanley Initiates at Underweight Amid Strong Competition and High Valuation

Morgan Stanley analyst Adam Jonas started the research coverage on 3 EV companies that went public through a SPAC merger recently.

As a general note, Jonas urges investors to set a very high bar for early/pre-revenue companies in this field.

“In the fast-moving EV de-SPAC arena, investors are presented with a range of differentiated technologies and/or business models with a path to scale in a large and fast growing market. However, there are also high levels of risk that investors must consider and that will require continuing due diligence/investigation over time. In our opinion, many of these dynamic businesses offer exciting investment opportunities, but have perhaps not yet earned a place in an investor's portfolio today given the associated risks and current valuations,” Jonas said in a client note.

Jonas initiated Lucid Group (NASDAQ: LCID) at Underweight with a price target of $12.00 per share signaling a downside risk of about 40%. Shares of the company are over 4% lower in pre-open Tuesday.

“Lucid is a highly vertically integrated BEV company that addresses the premium market at Tesla and above. Individually, we can point to a number of key innovations that consumers may value (powerful e-motors, refined interior, a high performance driving experience and many other "jewels"). However, we find ourselves asking how big is the market for this level of premium EVs and what are reasonable levels of risks that investors should shoulder in order to take what may eventually be only a modest slice of a crowded premium BEV market? At a $31bn valuation, the stock market appears to be ascribing an unusually high probability of scenarios where LCID achieves very high market share, margins or both. Where do we shake out? We think LCID can occupy a sustainable niche place in a difficult market but, at this stage, we see many obstacles left to hang with more established EV titans and grow into its valuation,” Jonas said in a note sent to clients.

Elsewhere, the analyst started Ree Automotive (NASDAQ: REE) also at Underweight, while Li-Cycle (NYSE: LICY) is started at Overweight.

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