Buying Lucid Stock on China EV Tariff News? Be Careful.
Shares of luxury electric vehicle (EV) maker Lucid Group (NASDAQ: LCID) moved higher on Monday, following a Wall Street Journal report that the Biden administration plans to sharply hike tariffs on Chinese-made EVs.
As of 2:30 p.m. ET, Lucid's shares were up about 6.6% from Friday's closing price.
A big tariff on Chinese EVs might seem bullish for Lucid
The Journal reported late Friday that the White House will soon announce a big increase to tariffs on Chinese made EVs -- from the current 25% to roughly 100%, effectively doubling the prices of Chinese electric cars for U.S. consumers.
While Chinese EV makers like BYD and Xiaomi enjoy significant cost and scale advantages over U.S. automakers at the moment, those advantages aren't great enough to overcome import taxes that would effectively double the prices of their vehicles.
On the surface, that's great news for American makers of EVs, including Lucid -- and it's not surprising that Lucid's stock jumped on Monday morning.
Lucid's luxury EVs -- the Air sedan and upcoming Gravity SUV -- compete in a very different part of the market from low-cost China EVs. Image source: Lucid.
But investors should note that while low-cost Chinese EVs might have found a following with U.S. consumers absent the tariffs, few Chinese EV makers are positioned to compete directly with Lucid's high-end luxury offerings.
Consider that the Lucid Air sedan starts at nearly $70,000, with top-line versions priced well over $200,000. It's expected that the upcoming Lucid Gravity SUV, which shares some underpinnings with the Air and is due by the end of 2024, will be priced similarly.
But Lucid plays in a different part of the market, and that probably won't change
Lucid isn't expected to launch its own lower-cost models until late 2026 at the earliest. And while we haven't seen those lower-cost Lucids yet, it's likely that they'll still be premium offerings with premium prices. Think smaller BMWs, not economy cars.
Long story short: While there are reasons to invest in Lucid if you're willing to be patient, news of higher tariffs on cheap Chinese EVs probably isn't one of them. Drive carefully here.
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John Rosevear has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BYD. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool has a disclosure policy.
