The firm's analyst also put an Underweight rating on Ree Automotive and an Overweight rating on Li-Cycle
Shares of Lucid Group (LCID) declined on Tuesday after an analyst at Morgan Stanley said in essence to sell the stock. The firm's analyst, who said he is "cautiously selective" in the electric vehicle de-SPAC space, also initiated Ree Automotive (REE) with a Sell-equivalent rating and Li-Cycle (LICY) with an Overweight rating.
SELL LUCID: Electric vehicle analyst Adam Jonas initiated coverage of Lucid Group with an Underweight rating, Morgan Stanley's equivalent of a sell, along with a $12 price target, which represents nearly 50% downside from Monday's closing price.
In a research note to investors, Jonas said that, at a $31B valuation, the stock market appears to be ascribing an "unusually high" probability of scenarios where Lucid achieves very high market shares. The analyst added that it believes Lucid can occupy a sustainable niche place in a difficult market, though at this stage it sees "many obstacles" left to hang with more established EV titans. While the company offers "a number" of key innovations that consumers may value, including powerful e-motors and a "refined" interior, Jonas questions how big the market is for this level of premium EVs.
Additionally, at its current valuation, Jonas said he believes Lucid has been given "far too much credit" for growth prospects, and the market is not properly taking into consideration the key risks that lie ahead for both the company and the industry as a whole.
In late July, shareholders approved Lucid's merger with Churchill Capital IV, a special purpose acquisition company, after the companies extended the deadline by one day because not enough retail investors showed up to cast their vote.
EV TECH CREDENTIALS: On September 9, Citi analyst Itay Michaeli initiated coverage of Lucid Group with a Buy rating and $28 price target. The analyst said Lucid has the "necessary building blocks" to benefit from his car of the future thesis. The company offers leading electric vehicle technology credentials, years of development experience, brand momentum and speed-to-market, Michaeli told investors in a research note. The analyst also likes the company's initial "L2+/AV sensor/software approach." Lucid "resembles much of what we like about Tesla, but without the lofty 2030 share & FSD/AV outcomes that one must underwrite," Michaeli wrote.
OTHER EV PLAYERS: On Monday evening, Morgan Stanley's Jonas also initiated coverage of Ree Automotive with an Underweight rating and $5 price target. The company intends to create a flat, scalable, and modular platform that can accommodate the broadest range of electric vehicles and aims to have 15 integration centers worldwide with annual capacity of about 600K units by 2026, the analyst said. Jonas warned, however, that Ree must circumnavigate the highly competitive electric vehicle market and compete with new players, legacy suppliers, as well as its own customers which are expected to become vertically integrated while in-sourcing key areas of the BEV platform. The analyst concluded that Ree's strategy was more in tune with the initial strategies of OEMs pre-pandemic, before the EV stakes really increased.
Jonas also initiated coverage of Li-Cycle with an Overweight rating and $15 price target. The firm believes Li-Cycle is well positioned to benefit from the "mega trend" of electric vehicle adoption thorough an ESG friendly process at a time when a domestic supply of strategic battery materials is increasingly under focus.
PRICE ACTION: In morning trading, shares of Lucid Group dropped 5% to $19.04. Meanwhile, Ree Automotive shares fell nearly 7% and Li-Cycle shares gained about 4%.