As it closes in on its deal to merge with Lucid Motors, what’s next for Churchill Capital IV (NYSE:CCIV) stock? Retail investors aggressively bought this special purpose acquisition company (SPAC) on rumor. Should they sell on the news?
Yes. On one hand, with Lucid seen as an electric vehicle (EV) startup that could give Tesla (NASDAQ:TSLA) a run for its money, it’s easy to see this SPAC continue to be a favorite among those chasing opportunities in this space.
On the other hand, while on paper Lucid has all the ingredients in place to become the “next Tesla,” (including having Tesla alum Peter Rawlinson as its CEO), there’s no guarantee it lives up to its ambitious delivery projections (400,000 vehicles by the mid-2020s).
What does this mean for Churchill stock, ahead of a possible deal? Shares will likely hold steady, or climb further, once a deal to buy Lucid is made official. Shares could continue to perform well while the deal’s pending. But, in the years that follow, the stock’s performance may underwhelm.
Why? Investors may be overestimating how likely this company will disrupt Tesla’s status as the coolest EV maker on the block. If it falls short, expect shares to produce lackluster returns. Churchill Capital IV could make for a good trade. But, in terms of a long-term investment that compounds like Tesla stock did in the past decade? You may be barking up the wrong tree.
CCIV Stock: What’s The Latest on the Lucid Deal?
Rumors of this blank-check company acquiring Lucid have helped to propel its shares more than five-fold since January. So, what’s the latest on this much-discussed, but not yet officially announced deal?
As Reuters reported Feb 16, Churchill Capital principal Michael Klein is making the rounds to raise additional financing for the SPAC. This raising of up to $1.5 billion in PIPE (private investment in public equity) funds is possibly preparation for the Lucid deal.
With CCIV stock recently up 31.8% on Feb 16 alone, investors are pricing this as if the deal’s fully in the bag. Previously, I discussed the possibility of this deal either getting delayed or scrapped. What’s my view now? The news of the company finalizing a PIPE raise may mean the risk the deal falls through is largely off the table.
This may make it less risky to trade this SPAC in the near-term. Yet, the long-term prospects for this stock are another story. Many may see this as the “next Tesla.” But, given how much it still has to prove, it’s going to be hard for shares to hold onto their current value.
No Guarantee This Is the Next Tesla
The odds this deal falls apart may be coming down. But, the odds this stock continues to perform well, after it buys Lucid Motors, remain uncertain. This goes for its financials, as well as for its prospects of scaling into a formidable Tesla competitor.
On the heels of the recent developments, Barron’s broke down how many of the financial details remain unclear. For example, the $12 billion rumored deal price for the transaction. Until we see more details, it’s unclear whether this $12 billion is based upon the initial $10 per share offering price, or on where shares trade today.
Per numbers from Barron’s, a deal price based on the current CCIV stock implies a $40 billion-plus transaction. Quite a rich valuation, considering Lucid is still in the pre-revenue stage. Yet, speculators still see this as reasonable, given their belief the company can disrupt Tesla’s status as the the top dog in the EV passenger vehicle space.
As InvestorPlace’s Tezcan Gecgil wrote Feb. 16, Lucid currently has the capacity to build 34,000 vehicles per year. Its mid-2020s production target is around 400,000 vehicles. However, with the company so far not providing pre-order numbers, it’s hard to tell whether EV buyers will be as head-over-heels over its flagship Lucid Air as the investing community currently is about it.
Be Careful If You’re Looking at This as a Long-Term Hold
As this SPAC inches closer to buying Lucid, there’s less risk of shares cratering on the deal falling through. That’s good news for those looking to this as a short-term trade. But, those buying this as a long-term investment? Your mileage may vary.
Lucid has much in place to become the “next Tesla.” But, with so much of its future prospects still unknown, the aforementioned $40 billion-plus deal price seems frothy, given that other “next Teslas,” like Fisker (NYSE:FSR), are valued at a fraction of that.
That’s not to say CCIV stock will fall back to its offering price. But, cashing out once the rumored deal becomes fact may be the best move.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
