To immediately answer the question posed by the headline of this column, I believe that Lucid (NASDAQ:LCID) and LCID stock are headed for much worse fates than Nikola (NASDAQ:NKLA) and NKLA stock. Moreover, the longer-term outlook of NKLA is much better than that of LCID.
Unless Lucid can change its overall strategy or suddenly create buzz about itself and its EVs quickly, it appears to be headed for bankruptcy. (Spoiler alert: it appears to be impossible for automakers to change their overall strategies quickly, and creating buzz will be tough for Lucid).
On the other hand, due to Nikola’s unique niche within the automotive sector and its impressive partnerships, the automaker can survive and thrive in the longer term.
Lucid Is Facing Tough Competition and Its Brand Strength is Coming Up Short
In several previous columns over the last two years, I warned that the automaker was facing intense competition in the luxury electric-vehicle market on the one hand while it was having difficulty attracting attention or “buzz” on the other.
Indeed, in addition to Elon Musk’s Tesla (NASDAQ:TSLA), Lucid has had to directly take on many veteran automakers with top-notch luxury brands that have entered the high-end electric vehicle market. Among the companies in the latter category are BMW (OTCMKTS:BMWYY), Volkswagen’s (OTCMKTS:VWAGY) Audi, and General Motors’ (NYSE:GM) Cadillac.
Indicating that my thesis about the company’s tough competition and lackluster brand is proving to be correct, Lucid’s reservation total is trending in the wrong direction. Specifically, in February, Lucid reported that its total reservations had sunk to 28,000 from 34,000.
Reacting to the news, Bank of America downgraded LCID stock to “neutral ” from “buy.” The firm wrote that “demand [for Lucid’s EVs] has not kept pace” with its supply improvements. According to the bank, Lucid may lose money until 2027 or beyond, and BofA warned that the automaker might have to obtain additional funds sooner than the bank had previously believed.
Nikola Faces Little Competition and Has Promising Partnerships
According to Seeking Alpha, Nikola CEO Michael Lohscheller reported that NKLA thinks that it is “he only company in the U.S. with a Class 8 hydrogen [hydrogen fuel cell] that will be available in calendar year 2023.”
Moreover, the truck maker already has lined up 100 orders for its hydrogen fuel cell truck, called the Tre, and will sell for more than $374,000 each. And importantly, the Tre is expected to qualify for a California tax break of $288,000 per truck, making it very attractive to potential buyers. Finally, Walmart (NYSE:WMT) extensively tested the Nikola Tre in the fourth quarter of last year, indicating that the retail giant is interested in buying Tre trucks.
Large trucks powered by hydrogen fuel cells have important advantages over battery-electric trucks. Specifically, trucks powered by hydrogen can carry significantly larger loads over meaningfully longer distances than their battery-electric peers, And while battery-electric trucks take hours to recharge, the Nikola Tre can be recharged in only 20 minutes, Nikola reported.
Among Nikola’s impressive partners are European energy giant E.ON and Plug Power (NASDAQ:PLUG), which is becoming one of the world’s largest suppliers of green hydrogen and has agreed to buy “up to 75” Tre trucks from Nikola. The automaker is also partnering with a huge German conglomerate, Bosch, which has invested in NKLA and is the biggest auto-parts supplier in Europe.
Finally, a single, large,”unnamed investor” recently agreed to buy “almost 60 million shares” of NKLA, boding well for the truck maker’s long-term outlook.
Lucid Will Have Trouble Turning Itself Around
As I mentioned earlier, to change its fate, Lucid will have to change its overall strategy or create buzz about LCID stock. By changing its overall strategy, I mean focusing on a completely different niche of the EV market. But in order to accomplish that task, Lucid would have to build completely new, very different EVs, and it would take the automaker several years to design and mass produce completely different vehicles.
In all probability, Lucid won’t be able to raise enough money to survive that long, as investors will grow impatient with it and put their money to work with more successful automakers.
Alternatively, Lucid can adopt a new marketing strategy in an effort to create more buzz about itself and its EVs. But given the many very famous automakers with which it’s competing, that will not be an easy task for the automaker.
Given these points, I recommend that investors sell LCID stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.