Rumors swirling around Churchill Capital IV (NYSE:CCIV), a special purpose acquisition company (SPAC), suggest Lucid Motors might soon go public via a reverse-merger with CCIV stock.
The share price has risen significantly since the start of 2021 after news headlines started, jumping from $10 to near $40.
InvestorPlace readers are well versed with how hot SPACs have been over the past year. Yet, this jump in CCIV stock is quite significant even in the SPAC space. In general, a SPAC like CCIV jumps from about $10 to $15-$17 following the initial announcement of a merger.
Therefore, the momentum CCIV has carried without confirming a deal is impressive. But we do not yet know that this reverse-merger will happen. If you are a potential shareholder, it’d be important to realize that the shares are risky at this point. The early potential of a merger between CCIV stock and Lucid Motors is possibly already priced into the shares. Let’s see why.
CCIV Stock Jumps on ‘New Tesla’ Tie-Up Talk
Why has the CCIV stock price surged so much in recent weeks? It is thanks to Lucid Motors, seen as a new Tesla (NASDAQ:TSLA) in the luxury electric vehicle (EV) market. Over the past year, TSLA stock has returned over 400%. We have also seen how hot the EV market is in general. The anticipation of a potential Tesla rival, as well as the momentum of the EV market, has drawn huge interest in the potential SPAC suitor’s shares.
California-based Lucid Motors is a pre-revenue auto group, formerly known as Atieva. In a recent interview on CNBC, Lucid CEO Peter Rawlinson stated that orders for their first vehicle, the Lucid Air, have been “overwhelming.” This first model is expected to be shipped in the summer.
Lucid has a first-stage factory ready in Arizona, which can produce 34,000 vehicles a year, with hopes that by the mid 2020’s they can be producing 400,000 per year.
Often, the success (and share price movement) of a SPAC depends on who the management team is. Churchill Capital CEO Michael Klein, a Wall Street veteran, already has a few successful mergers on his record.
In January 2019, the group announced a merger with Clarivate Analytics, a leading global provider of comprehensive intellectual property and scientific information, analytical tools and services. In July 2020, Churchill Capital Corp III struck an $11bn deal with healthcare company MultiPlan (NYSE:MPLN), in one of the largest deals for a SPAC.
Put another way, although CCIV stock has no operating business, the management team is experienced in the SPAC space to potentially make the next deal a success. Furthermore, Saudi Arabia’s sovereign wealth fund is a strategic investor in Lucid. Therefore, the company has access to significant amounts of capital. Despite the frothy valuation of the company, investors are excited about the prospects.
Bottom Line on CCIV Stock
There are clear risks to be outlined before putting your money into CCIV stock. As mentioned, there is currently no deal in place between these two companies, and we know that this rumor is the main catalyst of the share price increase.
An old investment adage states to buy the rumor and sell the fact. Often an event, like a potential merger, is priced into the share price before it is confirmed.
We should also keep in mind that Lucid is still a startup automotive company. The prospects might be exciting. A successful merger could be the start of a very appealing investment, one that many will keep their eyes on. But large amounts of capital and time are required before significant revenue will be made.
On the other hand, in the weeks to come, if no deal takes place, CCIV stock price could also fall significantly. Therefore, potential investors should carefully study the risk/return profile of investing in the company at this point.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
