There has been a flurry of special purpose acquisition company (SPAC) listings in the last few months. SPACs completed $26 billion in share sales, just in January which was a new record. One of the hottest names right now is Churchill Capital (NYSE:CCIV) stock.
At the beginning of the year CCIV stock traded at $10. Now it’s nearly six times higher at $58, and all without announcing a deal.
Of course, the rally is not without any reason. For a relatively extended period, there have been rumors that Churchill Capital is likely to announce a business combination with Lucid Motors. On Feb. 17, Reuters reported that Lucid Motors is nearing a SPAC deal. This triggered a fresh bout of rally for CCIV stock.
Given the news and the stock price action, it seems very likely that the business combination is coming. However, with CCIV stock up nearly six times, I wouldn’t be surprised if there is a sell-off on the news. For investors who missed out on the recent surge, a potential correction would be a good entry point.
In my view, a possible business combination will create significant value in the long term. Let’s talk about Lucid Motors and the reasons to be bullish.
Lucid Motors Looks Attractive
The electric vehicle space has attracted immense investor attention. Importantly, the EV segment is at an inflection point.
Over the next decade, the segment will continue to witness strong growth. In 2020, 1.7 million units of EVs were sold. This is likely to increase to 26 million in 2030 and to 54 million in 2040. Clearly, the market opportunity is huge. Lucid Motors can be among the big players in the next decade.
Production of the company’s first model, Lucid Air, is expected to commence this spring. The company already completed the construction of its first EV factory in North America. The factory is likely to have an initial capacity of 30,000 units.
Lucid Motors plans to increase the capacity up to 400,000 units. An important point to note is that the company’s plans next phase of expansion early this year. A potential SPAC deal would help finance the expansion.
Lucid Air is expected to have a base price of $69,900 (after federal tax credits). The pricing is attractive and Tesla (NASDAQ:TSLA) is likely to face competition from this U.S.-based EV pure play.
Among the features, Lucid Motors is talking about a 406 miles range and 480 horsepower. According to Peter Rawlinson, Lucid Motors CEO and CTO, “Tesla is a 400-volt. Porsche is introducing an 800-volt system. We are going with an over 900-volt system.” The CEO also believes that range and efficiency will differentiate the company’s EV from Tesla.
Therefore, there are reasons to be excited about Lucid Air. And if the business combination does happen, CCIV stock will remain a hot stock.
Concluding Views on CCIV Stock
By the end of the year, Lucid Motors plans to have 20 Lucid Studios across the United States. The idea is to allow customers to experience “Lucid’s advanced electric vehicle technology.” Be it the manufacturing facility expansion or opening of studios, the company need funding.
Therefore, there is a very high probability that the business combination rumors are true. Even in that scenario, it might not be a great idea to consider fresh exposure to a stock that has skyrocketed in the last two months.
Additionally, it remains to be seen how quickly the company can scale up and the visibility for free cash flows. These factors will determine the valuation of the merged entity.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored more than 1,500 stock specific articles with focus on the technology, energy and commodities sector.