In opposition to the backdrop of excessive inflation and rising rates of interest, electrical car (EV) shares have seen dramatic pullbacks from earlier valuation highs. Even after a run of rip-roaring positive factors to start out 2023, trade chief Tesla‘s (TSLA -3.15%) inventory trades down roughly 52% from its peak. In the meantime, luxury-focused upstart Lucid Group‘s (LCID -5.78%) share value is down roughly 85% from its excessive. 

Which of those EV shares is the higher purchase at present costs? Learn on to see why two idiot.com contributors come down on completely different sides of the talk of whether or not Tesla or Lucid inventory will ship higher returns for traders. 

Picture supply: Tesla.

Tesla inventory has explosive potential

Parkev Tatevosian: Admittedly, Tesla’s inventory has already had an unbelievable begin to the 12 months. Shares are up 55% whereas its rivals wrestle for traction. That mentioned, its inventory might have extra room to run if the corporate can maintain its wonderful tempo of progress.

Certainly, Tesla’s income has exploded from $21.5 billion in 2018 to $81.5 billion in 2022. Extra impressively, it has demonstrated ability in reaching economies of scale. Between the aforementioned years, Tesla’s working revenue rose from adverse $253 million to $13.8 billion. Buyers may be skeptical of the corporate’s means to proceed at this price. Nevertheless, Tesla expects to develop car deliveries by 50% yearly in the long term.

TSLA PE Ratio (Ahead) information by YCharts

At that tempo of enlargement, mixed with the advance in profitability that has come by means of scale and mastering the training curve, Tesla’s earnings might rise exponentially over the following decade. The important thing phrase there may be might. There’s a threat that competitors, diminishing client demand, and self-inflicted wounds will cease Tesla in its tracks. It is as much as particular person traders to determine if they’re prepared to experience this risky inventory for the long term. Judging by the valuation of Tesla shares, traders have eagerly strapped on their seat belts; the inventory has a ahead price-to-earnings ratio of 49.6.

Lucid is rising quickly and will get purchased out

Keith Noonan: Whereas Lucid probably stays years away from shifting into profitability and in addition trades at a considerably larger ahead price-to-sales a number of than Tesla, there are different elements that must be considered. Tesla’s profitability is clearly a key level in its favor, however Lucid must be rising gross sales a lot faster than the EV large, and it has even better explosive potential regardless of additionally being riskier. 

TSLA PS Ratio (Ahead) information by YCharts

With a market cap of roughly $16.3 billion, Lucid is lower than one-fortieth the dimensions of Tesla, so there’s doubtlessly much more room to run right here. Trying a bit additional out, Lucid is valued at roughly 4.9 instances anticipated gross sales for 2024, whereas Tesla is valued at roughly 4.6 instances anticipated gross sales for the 12 months. 

It bears repeating that Lucid seems like a a lot riskier inventory than Tesla, however its speedy income enlargement and smaller market cap additionally suggests extra potential for explosive progress if the corporate can execute at a excessive degree and carves out an enduring place within the EV market. There’s little probability that the smaller EV upstart will ever surpass Tesla or pose an enormous menace to the bigger firm’s dominant place within the trade, however that unlikely state of affairs would not must play out to ensure that Lucid’s inventory to ship higher efficiency.

Lucid ended 2022 with income of roughly $608.2 million, up from gross sales of simply $27.1 million in 2021. The corporate already has already had appreciable success focusing on the excessive finish of the EV market, and demand continues to look robust.

Not counting its settlement to ship as many as 100,000 automobiles to the Saudi Arabian authorities, Lucid had reservations for over 28,000 automobiles as of Feb. 21 — good for gross sales of greater than $2.7 billion. With Lucid focusing even additional up the luxurious car market than Tesla, the smaller EV firm might ultimately wind up seeing robust margins on car gross sales. And whereas losses are mounting because the enterprise ramps up manufacturing, it additionally stays nicely capitalized, with roughly $4.9 billion in whole liquidity on the finish of final quarter.

Moreover, some reviews counsel that Saudi Arabia’s Public Funding Fund (PIF) might buy Lucid outright. After growing its place within the EV firm final quarter, the Saudia Arabian fund already holds greater than 60% of Lucid’s excellent shares, which suggests a really excessive diploma of confidence within the enterprise’s long-term progress prospects. Relying on the acquisition value, it is potential {that a} buyout might be a catalyst that pushes the corporate’s share value considerably above present ranges.

With the corporate scaling quickly and doubtlessly being eyed for a full buyout by the Saudi Arabian PIF, Lucid inventory gives traders a number of methods to win proper now.

So which EV inventory is the higher purchase?

For many traders, backing Tesla might be the extra smart play. Tesla stands because the clear trade chief within the EV area, and the truth that it is rising gross sales at a formidable tempo whereas already being considerably worthwhile means that it has a a lot decrease threat profile in comparison with most smaller upstarts within the EV trade.

However for traders on the lookout for potential house runs with high-risk, high-reward shares within the EV area, Lucid might be a greater match. Tesla is already squarely in megacap territory, and Lucid’s comparatively small market capitalization means that the corporate has extra room for explosive valuation progress if its enterprise continues to scale and transfer nearer to profitability or if it winds up being acquired.