President Trump’s tariffs have disrupted the electric vehicle (EV) market, with Tesla, Inc.’s (TSLA Quick QuoteTSLA - Free Report) shares facing bouts of volatility as Elon Musk’s criticism grows. On the other hand, Lucid Group, Inc. (LCID Quick QuoteLCID - Free Report) has taken advantage of Tesla’s slipups, making the stock seem like a good investment. Let’s investigate further – 

Tesla Plagued With Issues

Tesla’s shares have plummeted 45% from their mid-December peak of $488.54, yet Musk holds the title of the wealthiest man on the planet. However, political backlash against him due to his involvement in Trump’s administration and embracing far-right politics in Europe has stained his EV brand’s reputation. 

Consequently, Tesla reported a slump of 13% in vehicle sales in the January-March quarter, its worst quarter since 2022. Aging vehicle lineups and stiff competition from peers also contributed to the drop in vehicle sales. Despite a slew of incentives, including zero financing and considerable discounts, Tesla failed to lure potential buyers. 

Vehicle sales in Europe took a beating, while its Cybertruck was recalled by the National Highway Traffic Safety Administration in the United States. Car buyers also restrained themselves from buying Tesla’s high-flying Model Y since an upgraded version is anticipated later this year.

Tesla Owners Are Switching to Lucid

Tesla’s woes, including the dearth of new vehicles and discouraging feelings about Elon, led to present Tesla owners and prospective buyers searching for alternate EV makers like Lucid. The company recently witnessed a dramatic surge in orders from Tesla owners, making up nearly half of the EV vehicle orders.

Being a smaller company than Tesla, a minuscule decline in demand for Tesla could greatly benefit Lucid. For instance, if Tesla loses only 1% of its 1.8 million vehicles sold in 2024, it indicates that 18,000 EV buyers are looking for alternatives, which Lucid can target, since it had sold a meager 10,000 vehicles last year. 

Lucid aims to sell 20,000 vehicles in 2025, doubling from last year, a bold goal indeed. However, with Lucid mainly acquiring spare parts from the United States, the new wave of tariffs is unlikely to affect them, making the target look feasible.

Is Lucid Stock a Buy Now?

With Lucid well-poised to scale up its business as car buyers lose faith in Tesla, it is judicious to hold onto the LCID stock for future gains. Brokers, too, are optimistic about Lucid’s growth potential as they raise LCID’s average short-term price target by 11.7% to $2.68 from the previous $2.40. The highest target is set at $5, an upside of 108.3%.

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However, not everything is in favor of Lucid. Despite notching revenues of $807.8 million in 2024, the company reported a negative gross profit of $923.1 million. For the quarter ending on Dec. 31, Lucid posted a net loss of $636.9 million or a loss of 22 cents a share on revenues of $234.5 million.

Furthermore, Lucid’s net profit margin is negative 335.9%, whereas the Automotive - Domestic industries are 4.4%, indicating revenues generated from car sales are not enough to cover overhead expenses. The company must increase production to become profitable, and until and unless that happens, new entrants should restrain themselves from placing their bets on LCID stock.

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In terms of production, Lucid must manufacture affordable EVs that cater to a wider market and not just rely on its $79,900 Gravity SUV that focuses mainly on niche customers. So far, so good, since Lucid’s first-quarter deliveries beat estimates and outpaced a year ago tally. For now, Lucid has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.