'Next Tesla' Despite 2.3 Trillion Loss, Market Cap Ranks 3rd... The Trap of Discrepancy

[Asia Economy Reporter Yujin Cho] Rivian and Lucid are emerging as strong challengers to Tesla, the global leader in the electric vehicle industry. As of the close on the 16th (local time), Lucid's market capitalization reached $89.8 billion. Rivian's market cap is nearly double that, at $152 billion. On its first day listed on the U.S. Nasdaq market, Rivian surpassed the market capitalization of the Big Three U.S. automakers and, just five days later, rose to become the world's third-largest automaker by market cap. Lucid also quickly overtook Ford to become the fifth-largest company in the industry.

◆"Chaos and Opportunity"=Foreign media have described the sharp rise in these companies' stock prices as "showing both the chaos and opportunity occurring in the global automotive industry." The surge in their valuations is interpreted as a result of the market paradigm shift toward electric vehicles and the added expectation of a "next Tesla."

Tesla's stock price has soared more than 11 times in the past two years, fueling market expectations for electric vehicles, which contributed to the frenzy surrounding these new EV startups. As of the previous day's close, Tesla's market capitalization stood at $1.059 trillion, exceeding the combined market caps of Toyota ($259.7 billion), Volkswagen ($139 billion), General Motors (GM, $90.9 billion), Ford ($79.1 billion), and BMW ($60.3 billion). Experts say these new EV companies will be tested on whether they can emulate Tesla, the EV industry leader that has joined the trillion-dollar club, in terms of stock price growth.

The automotive market paradigm has already shifted toward electric vehicles. Traditional automakers are losing ground amid the decarbonization trend, causing their market values to plummet, while new EV startups are filling this gap. According to a BloombergNEF report released alongside the 26th UN Climate Change Conference of the Parties (COP26), drivers worldwide are expected to purchase about 5.6 million electric vehicles this year. This is double last year's purchase volume and accounts for approximately 8% of global vehicle sales this year.

◆Accumulated losses of 2.3 trillion won but ranked number 3=However, there is a significant gap between the market capitalization and the actual business of these new EV companies. Rivian made a spectacular debut on the stock market with expectations of leading the U.S. electric vehicle market with its first electric pickup truck, but it has yet to generate meaningful sales.

Rivian only began customer deliveries of its first electric pickup truck, the ‘R1T,’ in September, so official sales have not yet been recorded. Meanwhile, due to development and production costs, it posted an operating loss of $991 million (about 1 trillion won) in the first half of this year. Since last year, its cumulative losses have reached $2 billion (about 2.36 trillion won).

Lucid recorded a net loss of $524.4 million in the third quarter alone. Despite shaky earnings, Lucid's currently marketed ‘Lucid Air’ has garnered high expectations after being named MotorTrend’s Car of the Year 2022, following in the lineage of Tesla’s ‘Model S.’ Lucid announced that it received 13,000 pre-orders in the third quarter alone, bringing total pre-orders to over 17,000. Peter Rawlinson, CEO of Lucid Group, expressed confidence in producing 20,000 vehicles next year and stated plans to manufacture 500,000 electric vehicles within 10 years.

However, since Lucid currently only markets one model, the luxury sedan ‘Lucid Air,’ and its production capacity is limited to a target of 20,000 vehicles next year, some experts say it is uncertain when these goals will materialize. The company has announced plans to expand production capacity to 90,000 units by adding a sports utility vehicle (SUV) lineup but has not specified a timeline.

◆Market cap is 50 times next year’s sales... calls for cautious investment=As the pace of profit turnaround for these two loss-making companies remains uncertain, calls for cautious investment are rising. There are concerns that their valuations, based solely on expectations, may be inflated beyond their fundamentals. Despite such bubble concerns, market expectations continue to rise.

Citigroup raised Lucid’s target stock price by more than 100%, from $28 to $57, citing increased bets by Lucid investors. Lucid’s current market capitalization ($89.8 billion) is about 50 times its expected sales for 2022.

This content was produced with the assistance of AI translation services.