Emerging electric-vehicle (EV) maker Lucid Motors announced late Monday that it agreed to a merger with SPAC Churchill Capital Corp. IV (NYSE:CCIV). The deal, worth $11.75 billion, is expected to be the largest amongst a shell company and an EV startup. The capital will naturally be used to speed up and expand the company’s plans. CCIV stock has grown 176% in the past few months, fueled by the hype surrounding its merger with Lucid. However, we currently don’t know Lucid’s financial status.
It appears that the EV bubble is finally deflating, with stalwarts such as Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), and others pulling back from their year-to-date highs. Several new companies are entering the industry, and major automotive giants are investing heavily in their EV competencies, so the inflated valuations in the EV industry aren’t justified at this time. If you’re contemplating Lucid as a long-term investment, it’s best to wait for a better entry point.
With little to no insight into Lucid’s financials, the parabolic price of CCIV stock, and the EV bubble beginning to fade away, you should probably wait for a better entry point.
A Look At The Deal
The merger between shell company Churchill Capital IV and Lucid Motors will have an estimated equity value of $11.75 billion. The private investment in the deal has a value of $15 per share, roughly a 50% premium to the SPAC’s net asset value. This takes the combined company’s value to an estimated $24 billion. Additionally, Saudi Arabia’s Public Investment Fund will continue to be the major shareholder.
The transaction will provide approximately $4.4 billion in net cash, which should speed up Lucid’s expansion objectives. It plans to begin commercial production of its flagship Lucid Air sedan in the second half of this year in North America. There is also the company’s luxury SUV: The Lucid Gravity, which will hit North American markets in 2023.
Furthermore, the funding will also be used in expanding its Arizona facility. The factory’s expansion comes in three phases, which will beef up capacity in producing 365,000 units per year. CCIV believes that Lucid offers a superior product in a saturated EV space. It has clear demand and focuses on sustainable development, which further adds to its attractiveness.
There was a time when Lucid Motors was flirting with bankruptcy in securing its Series D funding round to construct its Arizona facility. It then secured a $1 billion investment from Saudi Arabia’s sovereign wealth fund and has since then completed the facility’s first phase. Its Arizona facility currently has a capacity of 34,000 cars per year.
As mentioned before, the company will be working on two main cars: the Lucid Air and the Lucid Gravity SUV. The Air is fitted with advanced battery technology, which was initially meant for Formula E racing. Additionally, it has an efficient and compact drive train with exceptional aerodynamic abilities. Its SUV will also be releasing in 2023 after the expansion efforts on its Arizona facility are complete.
Lucid draws several parallels with EV juggernaut Tesla. Much of the senior management, including its founder Bernard Tse, has worked with Tesla in the past. Moreover, it will also adopt a similar go-to-market strategy in selling its premium vehicles and building a retail network chain to conduct retail sales.
At this time, the problem for investors is that there is little or no financial information available on Lucid at this time. That means that we don’t have a clear insight into its cash burn rates, expenses, capital investments, and other related items. Additionally, the past month’s price action has shot up CCIV stock to an incredibly high level. Its price could sky-rocket even more once the merger is complete. Therefore, CCIV could be a hot prospect in the next few months.
Bottom Line on CCIV Stock
The Lucid Motors and Churchill Capital merger looks mighty interesting. Lucid’s product pipeline is intriguing, and its parallels with Tesla will only benefit it in the long run. However, I feel that the EV bubble continues to deflate with every passing day. The parabolic rise of CCIV stock coupled with the risks surrounding Lucid Motors makes it an unattractive investment at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.