After decades of failures, finally electric vehicles are making a bid for the top spot in automotive propulsion. Tesla (NASDAQ:TSLA) busted that door wide open and hundreds of companies are trying to rush through it. Most likely, the bulk of them will fail but there are few standouts. Churchill Capital Corp (NYSE:CCIV) is bringing one that has high-end promise. Recently they brought Lucid motors public through a SPAC. CCIV stock, like many other SPACs. is already a wild ride. Today we try to make sense of owning it.
Before deciding on any stock investors need to define the time frame for the position. If this is a long-term commitment, then choosing the perfect time is a waste of effort. But for the rest of us, we prefer finding entry levels that makes sense.
For example, buying it at $64 per share was most definitely not an obvious point of entry last month. Those who did that lost 55% of their investment. After this CCIV stock debacle, now it looks like a more promising starting point.
CCIV Stock Is Full of Hope
Like most other EV SPAC ventures, it’s all a pipe dream still. They are in pre-revenue mode with promises of future successes. There’s nothing wrong with risking money on potential, as long as the size of the risk is reasonable. Investors should label this as a speculative bet that CCIV stock will grow into its current price.
Furthermore, this one’s addressable market so far looks more limited than the rest (more on this later).
Usually investors need to do homework but in this case the P&L’s are virtually blank except for expenses. Lucid Motors will offer very cool cars but at extremely high prices. Tesla’s upper range is almost the starting point for Lucid’s cars. They plan on using the direct-to-consumer sales model. On their website you too can reserve six-figure cars for as little as $300.
They also call their show rooms studios, and they plan on 20 locations this year. You can bet they will be in very trendy and high-income neighborhoods. My point here is that this is not a mass-market vehicle like Fisker’s (NYSE:FSR) Ocean.
Lucid is a high-end very specific target audience niche venture. I don’t mean to dis it. I am merely putting the scope in the proper frame. Elon Musk is paying attention and that’s testament to the legitimacy of CCIV. Furthermore, a former Tesla chief engineer is leading the charge, so he’s likely learned a few tricks.
To Buy or Not to Buy
The decision to buy CCIV stock will depend on personal preference and portfolio. My pick for the EVs would be either Tesla or Nio (NYSE:NIO) because they are currently earning their way to success. Honing a big operation’s efforts for improvements is more tangible for my taste. Purely speculating on someone’s successes in the future doesn’t appeal to me as much.
However, if I don’t have many speculative bets active, I would consider one on Lucid motors. My choice would be to give it the rest of the year to show me progress. Instead of buying the shares today, I would sell the December CCIV $15 put. For this I collect $3.20 per contract, which is a net credit transaction. I risk no cash out of pocket, and I create a big buffer in case things get tougher. If the stock falls 50% from current levels my position may still be OK. The break-even point of this trade would be under $12 per share.
The charts suggest that CCIV stock has support below current prices. Investors who stayed in it from the top can probably wait it out another week or two. Last week, the stock market fell under selling pressure. If this continues, it will also put a drag on this stock.
Having conviction is important, but falling in love with a stock is very dangerous. When investing in a speculative venture I don’t increase the size of the initial risk. I let the bet play out.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.