Will Lucid Be Worth More Than Tesla by 2040?

When Lucid (LCID -3.69%) went public by merging with a special purpose acquisition company (SPAC) three years ago, some bullish investors believed the luxury electric vehicle maker could become the next Tesla (TSLA -0.76%). Lucid was led by Tesla's former chief vehicle engineer Peter Rawlinson, and its Air sedans had a longer range than Tesla's Model S.

Lucid's stock soared to a post-merger high of $55.52 on Nov. 16, 2021, and boosted its market cap to $91.4 billion. That was 150 times the revenue it would generate in 2022. But today, Lucid's stock trades at about $2.50 a share with a market cap of just $6.5 billion, which is less than 4 times the revenue it's expected to generate in 2025.

That makes Lucid a tiny fish compared to Tesla, which has a market cap of $864 billion and is valued at 7 times next year's sales. But could this out-of-favor EV maker recover and surpass Tesla's market cap by 2040?

Why did Lucid's stock crash?

Lucid, like many other SPAC-backed EV start-ups, overpromised and underdelivered. Prior to its public debut, it claimed it could deliver 20,000 vehicles in 2022 and 49,000 vehicles in 2023. But in reality, it only delivered 4,369 vehicles in 2022 and 6,001 vehicles in 2023. It expects to produce 9,000 vehicles this year.

Lucid grappled with supply chain constraints, recalls, and the delayed launch of its Gravity SUV from 2023 to late 2024. It also stopped disclosing its number of vehicle reservations and repeatedly slashed its prices, which indicated it was struggling to keep up with Tesla's aggressive price cuts. Those moves also indicated Lucid didn't have the brand recognition or pricing power to execute its strategy of selling pricier EVs than Tesla and other higher-end EV makers.

In 2023, Lucid's revenue dipped 2% to $595 million as its net loss widened from $2.56 billion to $2.83 billion. For 2024, analysts expect its revenue to rise 34% to $799 million as its net loss widens to $2.89 billion.

By comparison, Tesla generated $413 million in revenue in 2022, but that figure nearly quintupled to $2.01 billion in 2023. Tesla also narrowed its net loss from $396 million in 2022 to $74 million in 2023.

Lucid's situation seems dire, but it's repeatedly raised more cash through new stock and debt offerings. The Saudi Arabian government, which owns more than 60% of its outstanding shares through its Public Investment Fund (PIF), is also supporting that long-term expansion. That's why it still ended its latest quarter with $4.28 billion in total liquidity.

Lucid plans to expand the annual production capacity of its AMP-1 plant in Arizona from 34,000 vehicles to 400,000 vehicles over the next four years. It also believes it can eventually expand the annual capacity of its AMP-2 plant in Saudi Arabia, which was partly funded by the country's state-backed investors, from 5,000 to 155,000 vehicles.

How much could Lucid be worth by 2040?

If Lucid successfully ramps up its production, analysts expect its revenue to more than quadruple from $799 million in 2024 to $3.31 billion in 2026. They also expect it to narrow its net loss from $2.89 billion to $1.89 billion. That would make it comparable to Tesla in 2014, when the EV leader generated $3.2 billion in revenue with a net loss of $294 million.

But from 2014 to 2023, Tesla's revenue grew at a compound annual growth rate (CAGR) of 46% to $96.8 billion. It also turned profitable by generating a net income of $690 million in 2020, and that figure soared to nearly $15 billion in 2023.

It could be very difficult for Lucid to replicate that growth trajectory for three simple reasons. First, Tesla established an early mover's advantage in the EV market. Second, the EV market is much more saturated than it was 10 years ago. Lastly, Tesla initially benefited from big government subsidies which had been dialed back over the past decade.

Let's assume Lucid can match analysts' estimates and grow its revenue at a respectable CAGR of 20% from 2026 to 2040. If that happens, it could generate nearly $43 billion in revenue by the final year. If Lucid's stock is trading at 7 times sales like Tesla by then, it would be worth about $300 billion -- but that would still make it less than half as valuable as Tesla today.

As for Tesla, analysts expect its revenue to grow at a CAGR of 12% from 2023 to 2026. Its business is maturing, but it could potentially grow at a more modest CAGR of 10% from 2026 to 2040 and generate $520 billion in revenue by the final year. If it's trading at 7 times sales by then, it would be worth a whopping $3.6 trillion.

Therefore, Lucid probably won't come anywhere close to matching Tesla's market cap by 2040. But if this underdog gets its act together, it might still carve out a defensible niche with its pricier and longer-range luxury EVs.