In late February, the special purpose acquisition company (SPAC) Churchill Capital IV (NYSE:CCIV) and California-based Lucid Motors, a pre-revenue electric vehicle group, announced their upcoming merger. Upon completion of the merger, CCIV stock will start trading on the NYSE under the new ticker “LCID.”
Investors were bullish on CCIV in the early parts of 2021, following the initial rumors about the possibility or a business union between the two groups. On Jan. 11, the shares opened around $10. In a matter of weeks, CCIV stock hit a high of $64.86. Now, it is around $23.
Several EV makers and alternative energy stocks, as well as SPACs, have shown stellar performances over the past 12 months. For instance, EV darling Tesla (NASDAQ:TSLA) and the Chinese group Nio (NYSE:NIO) returned around 600% and 1,560%.
Put another way, the market is looking for the next champion in the EV space.
As we get ready to welcome a new earnings season, analysts debate what might be in store for CCIV stock. The recent price decline has understandably improved the margin of safety for new investors. If you do not yet hold shares in the company, you might regard any further dip, especially toward $20, as an opportunity to buy for the long term.
What This SPAC Merger Might Mean
Potential investors need to keep in mind that Lucid Motors does not currently have any revenue. Management hopes the first vehicle, Lucid Air, will be ready during the year. CEO Peter Rawlinson, a former Tesla executive, is optimistic as preliminary orders for the vehicle has been strong. Such a premium car would come with strong margins and help finance the group’s future expansion. Regular InvestorPlace.com readers will remember that with its luxury sedan Model S, Tesla had followed a similar strategy in its early years.
Meanwhile, Lucid is building its first-stage factory to manufacture its high-end vehicles. The Arizona-based factory could potentially produce 34,000 vehicles a year. Lucid hopes within the next several yearsto boost that number to 400,000 per year.
We do not yet have enough metrics that would allow us to assign a fair value to CCIV stock. Nonetheless, we can also look at the management team of the SPAC partner. Churchill Capital CEO Michael Klein is a highly regarded Wall Street veteran with several successful SPAC mergers on his business card. For instance, two years ago, Churchill announced a merger that led to the formation of Clarivate (NYSE:CLVT), which provides comprehensive intellectual property and scientific data, and analytical tools.
In July 2020, Churchill Capital Corp III finalized another $11 billion merger that led to the formation of the healthcare company MultiPlan (NYSE:MPLN). However, despite the success, many SPACs of the past year have come under pressure in recent months. Wall Street now questions whether the SPAC-hype is beginning to fizzle out.
On a final note, Saudi Arabia’s sovereign wealth fund has also invested in Lucid. At this point, the EV group has considerable cash at hand, giving the markets confidence about the prospects in the rest of the year.
Bottom Line on CCIV Stock
The coming months will better show if Lucid will be a leading name among EV makers and compete well, especially against Tesla. Buyers of Lucid Air would need to see if the consumer experience offered by the car can indeed rival other established names.
Therefore, for now, potential investors need to keep in mind the large amount of capital and time it will take to generate significant revenue. Patience will likely be necessary on the part of investors. If you’re interested in purchasing CCIV stock, you might consider investing around $20. But you should clearly weigh the risk/return potential vis à vis your own portfolio objectives.
If you do not want to commit full capital to CCIV stock, you might also consider ETFs that focus on SPACs, EVs, or alternative energy businesses. Examples include the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the iShares Global Clean Energy ETF (NASDAQ:ICLN), the SoFi 50 ETF (NYSEARCA:SFYF), the SPAC and New Issue ETF (NYSEARCA:SPCX), or the VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
