Tesla shares fell 17%, will Luminar stock continue to rise?

Luminar stock (NASDAQ: LAZR), a company developing lidar sensors for self-driving cars, fell about 15 percent last week, down about 4 percent below the S&P 500. The stock also fell about 17 percent last month. There may be several factors that have driven the recent sell-off. First, Luminar issued about $550 million worth of convertible bonds last month, while buying back about $250 million in shares. Given that the company has yet to start meaningful business operations and could take years to achieve profitability and positive cash flow, investors may be a little apprehensive about these deals. In addition, ev stocks have generally outperformed the market in recent weeks due to rising bond yields, which could also hurt Luminar. For insight, Tesla shares are down about 17% year-to-date in 2022.

Given that LAZR's stock fell 17% last month, will it continue to fall, or is it about to rise? Historically, LAZR stock is more likely to fall next month. Luminar's third quarter 2021 results were mixed, with revenue slightly lower than expected and earnings per share in line with expectations. However, the current financial results are not important to Luminar because the company has not yet begun meaningful commercial operations. In addition, the company actually performed quite well in winning new customers and increasing orders. The company said its forward-looking orders are on track to achieve a 60 percent year-over-year increase in 2021. Luminar also seems poised to produce its low-cost, mass-market iris sensors, so could LAZR stock rise further in the coming weeks and months, or does it look more likely to make a correction? Based on an analysis of historical stock price movements, there is only a 37% chance that LAZR stock will rise in the next month (21 trading days).

Electric vehicles are the future of transportation, but choosing the right EV stock can be tricky. Investing in EV parts supplier shares can be a great option to drive the growth of the EV market.

While it's difficult to evaluate a stock like Luminar, given that it hasn't yet begun a meaningful business operation, experts believe the risk-reward outlook looks better at current levels. Due to growing environmental concerns, the automotive industry is moving to electric vehicles at a faster than expected pace, and self-driving technology is increasingly seen as the default function of high-end electric vehicles and should receive attention. Luminar expects the total potential market for its sensor and software solutions to reach approximately $150 billion by 2030. Luminar may be well positioned in this market because of its production planning partnerships with OEMs including Volvo, Daimler Trucks and China's largest automaker. Car company SAIC. Luminar's technology will also be standard in Volvo's next-generation electric SUVs. The company's production plans for low-cost, mass-market iris sensors are also progressing, noting back in August that it has secured more than 85 percent of its production supply chain. Luminar also acquired OptoGration, which designs and manufactures key InGaAs photodetector chips for sensors.

It's unclear if Tesla really intends to use lidar in its vehicles, as the company has invested heavily in camera-based systems. Since 2016, the company has been making camera hardware standard in every car it delivers, enabling users to unlock functionality by paying for software. Tesla is more likely to simply compare lidar technology with its own camera-based system. Given the high stakes involved in the self-driving race, Tesla also has the potential to reduce the risk of relying on a single technology by testing autonomous driving capabilities with alternative hardware. Investors also seem to believe that this will not have a long-term impact. While Luminar's stock rose nearly 10 percent on Thursday, it largely gave up its gains since then after the news broke.

First, the company hopes to transform from a pure lidar supplier to a full-stack autonomous car maker through the Sentinel autonomous system developed in partnership with Volvo subsidiary Zenseact. The system integrates Luminar's perception software, Iris lidar, and related components with Zenseact's autonomous driving software. Given the higher added value associated with software, full-stack systems should be more profitable for companies.

Luminar is also entering the Chinese market, where SAIC, the country's largest automotive company, plans to integrate the Sentinel system into its "R-brand" cars. Luminar also plans to set up an office in Shanghai to work with SAIC. China is one of the largest and fastest growing markets for electric vehicles, and building a leading position in the field of autonomous driving solutions can help Luminar in the long run.

The company also continues to win more customers, with its forward-looking orders reaching $1.3 billion at the end of last year. Luminar plans to increase that order by more than 40 percent this year. While the company expects commercial deliveries to begin next year, it expects to generate revenue of $25 million to $30 million in 2021.

While Luminar's market capitalization is about $8 billion, given that the company has no manufacturing record and may be more competitive with companies like Intel's MobileEye that seek to produce their own lidar sensors, recent developments and a correction in the stock price mean that the return risk for Luminar stock looks a little better.

Now, while Luminar's technology seems to be well suited to mass-market self-driving cars, competition is intensifying. Velodyne Lidar (NASDAQ: VLDR), a company that has so far focused on high-performance, high-cost lidar sensors, has developed a new mass-market sensor that is said to cost as little as $500 to produce. Even MobileEye, an Intel subsidiary that is currently a Luminar customer, wants to build its own lidar sensors by 2025. It will take a while for Luminar to start generating significant revenue. The company expects revenue of just $35 million in 2022, which will rise to more than $800 million by 2025. Given the increasing competition and the company's lack of large-scale manufacturing records, there is a lot of uncertainty.

While there hasn't been much news about the company in recent weeks, the electric vehicle (EV) industry, which is leading the autonomous driving revolution, has attracted a lot of attention. For example, there is growing enthusiasm for electric vehicle programs around traditional automaker General Motors (NYSE:GM) as the company sets up a new business unit to sell electric vans and also sees Microsoft invest in its self-driving car division, Cruise. In addition, Chinese e-commerce giant Alibaba has partnered with state-owned SAIC To launch a new brand of electric sedan. Apple is also rumored to be developing its own electric car, with reports that it has held a meeting with electric vehicle startup Canoo (NASDAQ: GOEV) in this regard. While none of these developments have directly impacted Luminar, the company is seen as the technology leader in lidar in mass-market vehicles, and it does benefit as electric and self-driving cars continue to gain traction. The stock is also still one of the few pure options in the self-driving market.

Velodyne focuses on high-performance, high-cost lidar sensors. The company's sensors, such as 360-degree devices placed on the roof, are typically used in prototype self-driving cars and other relatively small applications, such as research and development. Based on the company's cumulative shipments and revenue data on the S-1 form, the average cost of its sensors is $14,000 per unit. The company reported revenue of more than $100 million in 2019, down from about $142 million in 2018 due to lower average selling prices and a larger mix of low-cost sensors sold.

Luminar, on the other hand, is focused on building sensors that can be used in mass-market vehicles. The company's sensors are expected to be the best choice for automakers, costing less than $1,000 each while offering very powerful performance relative to their price. For example, Luminar claims that its lidar has an industry-leading 250-meter viewing range. The company is focusing on signing large, long-term deals, noting that it has partnered with 50 companies, including seven of the top ten automakers in the world. Volvo's next-generation electric car, which is expected to launch in 2022, could be the first consumer car to use Luminar's high-performance lidar system.

In addition, Luminar's high valuation is supported by the fact that its stock is one of the few pure options available to investors in the autonomous driving market. However, there are several other lidar vendors that could go public this year, which could provide investors with more investment options and potentially reduce demand for Luminar stock. For example, Israel-based lidar company Innoviz Technologies is likely to go public through an SPAC merger sometime in the first quarter of this year, while other lidar companies AEye and Aeva may also go public in a similar way in the near term.