Back in February, I wrote an article on Churchill Capital Corp IV (NYSE:CCIV) about the mania around special purpose acquisition companies (SPACs) and how that excitement didn’t make CCIV stock a buy. Interestingly, though, on the day the article was published, it reached a 52-week high of $64.86. Since then, shares have corrected about 58%, now trading at just under $30.
On top of that, however, I also wrote on Feb. 18 that rumors on the company’s acquisition target were “not a solid reason to buy CCIV stock.” Now, it looks like the rumors have become reality, with the SPAC set to merge with Lucid Motors.
So, with these developments, it’s time to revisit my investment thesis on this electric vehicle (EV) play. Should you buy CCIV?
The Fundamentals Have Not Changed for CCIV Stock
No doubt, the burgeoning EV industry is an exciting proposition that’s full of promise.
However, with all of the EV hype last year and in 2021, the chances of a bubble in this interesting sector are increasing more and more. On top of that, SPACs are a bet on the future — a bet that may or may not pay off. Based on excitement, price is often neglected. That in itself is also too dangerous.
Of course, only time will tell. But right now, this is an expensive stock to buy based just on the potential. And, after all, what exactly is the potential for CCIV stock and Lucid Motors?
Can Lucid Motors Become a Top Player in EVs?
The latest news about Volkswagen (OTCMKTS:VWAGY) and its EV business plans provide the perfect argument for my financial analysis on CCIV stock. Put simply, the future of the automotive industry seems to now be electric vehicles. But that means competition is already heating up and will be even more intense in the future.
So, what does a company need to be a dominant player in the EV industry? Here are a few items that come to mind:
- Plenty of capital, large capital expenditures, economies of scale
- Pricing advantage and multiple models to meet consumer demands
- Profitability in the long run
- History as a brand, a loyal and increasing (and preferably global) clientele
- A vision as well as high goals
Not as established as other automotive brands, Lucid Motors unfortunately can’t check all of these boxes. Conversely, Volkswagen recently announced its ambitious plans to become one of the world’s largest sellers of EVs. According to CNN, the “German carmaker said Monday that it plans to build six ‘gigafactories’ in Europe by 2030 with a total production capacity of 240 gigawatt hours per year.” The article also noted:
“Battery costs, which make up a large proportion of the total cost of an electric car, will be reduced gradually by up to 50% in entry level models and by up to 30% in standard models, Volkswagen said in a statement.”
The core business concept behind Volkswagen’s plan hinges on this point. Those reductions of cost in batteries will make VWAGY’s prices lower and more competitive. Plus, the company’s ability to support a massive production scale will help it focus on profitability.
What does Lucid Motors have in common with Volkswagen’s strategy? Nothing. And I’m not just referring to the vast differences in market capitalization here. Instead, I’m talking about the broader picture.
Lucid Motors Is Joining the Party Too Late
In a press release, Lucid Motors stated that its “mission is to inspire the adoption of sustainable transportation by creating the most captivating luxury electric vehicles centered around the human experience.”
But is the Lucid Air a good car, or a car that can shape the future of e-mobility? Personally, I don’t doubt that Lucid’s EV is great, full of innovations and even high-tech Dolby (NYSE:DLB) speakers.
However, with a starting price of $69,900 for its cheapest model and a price of $161,5oo for its top model, the Air Dream Edition, Lucid Motors is going to face too much competition. Other well-known luxury carmakers have already launched their EV models — such as the Porsche (OTCMKTS:POAHY) Taycan and the Audi E-tron GT. Likewise, other popular luxury brands are far along in making their EVs.
So, why choose the Lucid Air over another premium model from a stylish European carmaker? Just to be different? And what about the ability to reduce prices? How can Lucid Motors compete with other EV makers in the face of a strategy like that? What is the actual competitive edge for Lucid Air models — and CCIV stock?
Be Patient with CCIV Stock
The bottom line is that, while Lucid Air seems to be an excellent product and a car with a future, Lucid Motors is joining the party too late. And of course, we still know little about the company’s sales and how its models are being received.
Because of that, you should avoid the hype and the enthusiasm around this name. Nothing has changed yet for CCIV stock. It’s both too risky and too expensive.
Instead, be patient and wait for actual results. Jumping into the stock now would just be pure speculation.
On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.