Churchill Capital IV (NYSE:CCIV) is one of the “blank-check firms” that has popped up like spring tulips in the past year. And as a result, CCIV stock has had some major ups and downs.
I’m of two minds on these special purpose acquisition companies (SPACs). First, it seems to be helping transfer some wealth to innovative companies that may well build in the future economy of the U.S. and force large status quo companies to find innovative ways to compete as well.
On the other hand, SPACs remind me of Wimpy in the old Popeye cartoons. His line was always, “I will gladly pay you Tuesday for a hamburger today.” But Wimpy never shows up on Tuesday.
That’s the dilemma — hope or skepticism. And that certainly applies to CCIV stock.
CCIV Stock Is A New Type of Investment in a New Era
Many SPACs are taking advantage of the rise in ESG (environmental, social and governance) investing. Institutions are now more interested in a broader definition of what qualifies as profitable investing. The “bottom line” has been extended to take into account the environmental impact of a company’s products and factories, its contribution to social inclusion and a broader representation in corporate governance (i.e., more than rich, old, white guys).
Institutional money makes up about 80% of the money in the markets, so this has a massive effect on how Wall Street financial firms invest for their institutional clients as well as how traders do their jobs.
As of late February, CCIV is a SPAC that has found its mate. It’s electric vehicle (EV) hopeful Lucid Motors.
Hype and Hope
Again, the dichotomy here is that this deal was part of so much excitement and speculation that CCIV stock soared to $64 a share from its IPO price around $10 a share. That valued the Lucid deal at about a $90 billion market capitalization, as large as the biggest automakers in the world that are producing tens of millions of cars and trucks a year.
Even Tesla (NASDAQ:TSLA), with its outrageous $665 billion market cap, is at least making 500,000 cars a year.
But once the final deal was reached and investors realized that the share issuance was so low, the stock immediately sold off, and today it sits at around $26 a share, half the price of Ford (NYSE:F) stock.
And there we have it. A company that won’t deliver a car until later this year (at best) is selling at a higher price than the no. 1 seller of pick-up trucks in the U.S. What’s more, its first electric vehicle (EV) is a $70,000 sedan. Many big auto manufacturers are cutting their lines of sedans due to lack of demand.
Plus, it’s not the only EV company being hunted by SPACs. It’s one of many EV makers looking for funding.
Look Back to Look Forward
If you look back to the dawn of the car as we know it today, when the assembly line came into use early in the 20th century, car manufacturers boomed. There were 253 car companies in the U.S. in 1908. By 1929, 44 remained. And then it was the Big Three.
Today in China, there are about 400 EV makers. And the U.S. is becoming a big EV player as well, especially for high-end EVs, which is similar to the models produced by the original carmakers of years past.
The point is, we’ve been here before, and while it’s tough to disengage from the excitement and pervasive FOMO vibe, you shouldn’t think it’s any different this time.
If you’re a trader, then enjoy yourself, but just understand the professional institutional traders are smarter than you are and have far more capital at their disposal than you do. They can afford mistakes, and they’re playing with house money, not their own.
Is Lucid Motors a Wimpy Promise?
Given many EV makers’ talk versus their actions — even the evangelical Elon Musk — we’ve seen time and again that building a car is different than selling, distributing and maintaining them.
Most carmakers don’t make their big money on vehicle sales, they make it getting customers to service their cars at the dealerships. Maintenance is where the margins are. And they’re more recurring.
Granted, EVs have fewer moving parts, but they will need to be maintained. That means parts inventories, trained mechanics, etc. The unsexy reality of the business.
There’s no doubt Lucid, and now CCIV, has some serious backers — the Saudi Arabia sovereign wealth fund, major Chinese investors (Lucid began as a Chinese battery company for buses) and now big U.S. money. And yes, there’s talk of Lucid opening a Chinese factory, which would open up China.
But the promise is all about a payoff next Tuesday, and these big investors aren’t risking it all on Lucid. And if you’re interested in CCIV stock, neither should you.
I know it’s tough to have patience in this kind of market, but just remember when the last boom in automotive transportation took place — from 254 to three in a matter of 15 years. Is Lucid really going to be the one left standing? Here’s something to reflect on before you answer.
On the date of publication, GS Early has no position in the stocks featured in this article. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
