Editor’s Note: This article was updated on March 29, 2021, to clarify information about Saudi Arabian investment.
As Lucid Motors prepares to go public through Churchill Capital IV (NYSE:CCIV), its plans are coming into focus. Yet CCIV stock is down about 50% from its mid-February high.
Lucid Motors launched in 2007 as a battery maker under the name Atieva. Six years later, when it pivoted to cars, it recruited Peter Rawlinson from Tesla, where he was chief engineer. Its Arizona factory, now under construction, will be capable of producing about 35,000 vehicles per year. The Saudi deal is part of an effort to ramp up a global network of plants that would see it equaling Tesla’s current production by 2030 .
The Saudi Connection
The Saudi connection is a double-edged sword. It was negotiated by Michael Stuart Klein, the investment banker bringing Lucid to market. Lucid got $1 billion from the Saudi Public Investment Fund in 2018. Klein later advised the Kingdom on the local IPO of Saudi Aramco. The national oil giant trades there under the symbol 2222.
The money came in the same year journalist Jamal Khashoggi was murdered, reportedly by the Saudi government. The cash came with a commitment to build a factory in the country, which has been struggling for western investment since Khashoggi’s murder. The Saudis have also provided bridge financing in the current CCIV special purpose acquisition company deal.
Building a plant in the Kingdom would be expensive for Lucid Motors. Labor costs are high, there’s no parts infrastructure and there’s a tiny domestic market. Toyota Motor (NYSE:TM) reportedly walked away from the deal over costs. Meeting the commitment might hurt profits without further Saudi subsidies.
Lucid’s Battery Plans
Lucid Motors has also had a lot of time to think about its batteries, the key component in any electric car. The current plan is to recycle them as storage devices once they lose 30% of their range. The DC batteries could be loaded with AC converters for homes, or they could be sold to utilities and industrial users for back-up power.
This is just one way in which Lucid Motors looks like a Tesla clone. Rawlinson said Lucid and Tesla are the only two electric vehicle operations being run as technology companies.
Lucid also has plans to build its powertrains and battery packs separately from the cars. This would let Lucid supply these components to other car makers. The main Lucid plant will only build bodies and do final assembly.
The Bottom Line on CCIV Stock
Lucid Motors seems much closer to scaling production than other U.S.-based electric startups, like Workhorse Group (NASDAQ:WKHS) and Lordstown Motors (NASDAQ:RIDE). Tesla built its market from scratch. But Lucid, fueled by CCIV stock money, is going into an existing market. It must compete head-to-head with other EV makers from the get-to.
The detailed plans are a big advantage, but they will also cost public shareholders dearly. InvestorPlace contributor Thomas Yeung notes that the public will only be getting 16% of Lucid in the CCIV transaction. This realization has sent shares tumbling in March, making them attractive to fellow contributor David Moadel.
I have been a Lucid skeptic. But the large-scale capital plans indicate the company does know what it’s doing, and what it’s up against. Contributor Stavros Georgiadis is counseling patience for Lucid investors, and that sounds wise. You won’t even start to see a payoff here for five years. This is a long-term speculation.
At the time of publication, Dana Blankenhorn owned no shares, directly or indirectly, in any companies mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.