While there’s been some notable positive news for Lucid Motors in recent weeks, I continue to believe that the valuation of Churchill Capital Corp IV (NYSE:CCIV) stock is excessive. Following the announcement of the merger, CCIV stock has since dropped over 50%. It’s still too high.
Churchill Capital Corp, a Special Purpose Acquisition Company (SPAC), has agreed to merge with electric vehicle (EV) maker Lucid Motors. A “pre-revenue” company, the auto maker is led by its CEO, Peter Rawlinson, Tesla’s (NASDAQ:TSLA) “former VP of vehicle engineering.”
The Good News for Lucid
On March 22, Lucid reported that it had received orders for all of the Dream versions of its Air sedan that it intends to produce.
That’s certainly good news, as it shows that there’s meaningful demand for the EV and that Lucid probably won’t have to drastically lower its price in order to sell all of the Dreams that it initially produces. (Those who placed orders for the $169,000 EV had to give Lucid “a $7,500 refundable deposit.”)
But, pouring some proverbial cold water on the achievement, Elektrek stated that Lucid, as of March 22 , “only {intended} to produce ‘about 500 Air Dream Editions.'”
Second is the fact that Lucid is reportedly heavily backed by the “sovereign wealth fund” of Saudi Arabia. Although that’s not news, as it’s been public knowledge for a long time, it bears repeating if you weren’t in the know, it’s important to note.
At any rate, the Saudis’ investment in Lucid, which was reportedly worth $1.3 billion as of Jan. 22, should provide the EV maker with enough cash to stay afloat for a long time.
Moreover, assuming that the Saudis have access to top financial and auto experts, the sovereign fund’s investment largely validates Lucid’s technology, leadership and upcoming EVs.
Finally, likely using some of the Saudis’ money, Lucid recently announced that it had hired three impressive executives, including the former CTO of the highly successful EV startup Rivian and a former Apple engineer and senior director who Lucid says “with deep expertise in creating products that enable innovative user experiences through excellence in design and engineering.” The third executive has “extensive operational experience across development, manufacturing, supply chain management, quality, and distribution.” He “designed and executed comprehensive quality processes” at several companies, including Tesla and Nissan.
The Old Problems Are Still Around
Unfortunately for Lucid and the owners of CCIV stock, the same two negative catalysts for the shares that I’ve discussed in recent columns about the name are still intact and have not weakened meaningfully. Specifically, the shares’ valuation remains extraordinarily and unjustifiably high, while EV stocks’ momentum is still fading.
In his March 19 column, InvestorPlace contributor Thomas Yeung wrote that “The actual value of Lucid Motors sits at $47 billion, or almost as much as Detroit-based stalwart Ford (NYSE:F).” Since March 19, Churchill’s shares have fallen about 15%, ostensibly lowering Lucid’s value close to $40 billion. Still, that remains a startlingly high valuation for a pre-revenue company, even one with Lucid’s strong credentials.
That’s especially true because EV stocks have, of course, lost a great deal of momentum in recent weeks. Gone are the exuberant days when EV stocks seemed to be heading constantly higher; indeed, on most days lately, the sectors’ shares, including CCIV stock, have been rapidly losing ground.
The Bottom Line on CCIV Stock
There have been some promising developments vis-a-vis Lucid, and the automaker’s outlook remains promising. But my view on the stock really hasn’t changed; given the stock’s gigantic valuation and the EV sector’s lack of positive momentum, the shares are too expensive to consider buying at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
