Two factors knocked the wind out of Churchill Capital IV (NYSE:CCIV) stock. First, when the rumors of this SPAC’s (special purpose acquisition company) merger with Lucid Motors became fact, investors sold on the news. That’s why the stock, which skyrocketed more than six-fold ahead of the announcement, plunged in late February.
Second, the EV stock correction, which started around the same time. With investors bidding up the sector many times in 2020 and early 2021, it seemed nothing was going to stop this popular investing trend. But, rising interest rates, and concerns about valuation, convinced many it was time to hit the “sell” button.
Yet, now, the dust has settled on both these issues. The sector is far from back to its recent highs. But, major names are starting to mount a rebound. And, that includes CCIV stock. Finding support at around $22 per share, the EV SPAC stock is starting to trend higher once again.
Sure, it may be too early to call this the start of a recovery. Concerns over whether it can beat out incumbents like Tesla (NASDAQ:TSLA), and dominate the luxury EV market, remain on the table. But, recent news is helping to back up the bull case. If more positive developments come out, it may be enough to send it back above $30 per share.
Subsequent News Could Sustain Upward Price Moves for CCIV Stock
Better-than-expected delivery numbers have helped Tesla stock start to recover. Recent delivery numbers are also helping to support shares in China-based EV maker Nio (NYSE:NIO). But, for an early-stage electric name like this one, what’s going to help sustain a recovery for its stock price?
Recently disseminated information, such as details of its manufacturing capabilities, and its reservation numbers, may be starting to renew confidence that it can someday dominate the premium EV space. As I discussed previously, Lucid has more than enough “ingredients of success” on its side. These additional signs of progress are just icing on the cake.
Of course, it’s not guaranteed that Lucid is destined to become the king of high-end EVs. Tesla already has established itself in this space. With an existing economic moat, it may still have an edge over this upstart.
Yet, it may not be wise to assume Tesla is unsinkable. It may have many advantages when it comes to large-scale manufacturing. But, its moves to expand its user base may Lucid an opening for a large piece of the luxury market.
Lucid vs. Tesla
Will Lucid Motors start eating Tesla’s lunch? Or, does the established EV maker have the power to prevent this from happening? First, let’s look at the side of this argument that’s bearish on Lucid’s prospects.
Recently, a Seeking Alpha contributor made the case why this company isn’t the next Tesla. Believing Lucid’s “destined for failure,” the commentator lists many ways why this company won’t usurp the EV top dog. Chief reasons include a more competitive environment, plus its relative inexperience in large-scale production.
Given this company still needs to prove itself, both are valid points. Plus, as the bearish commentator pointed out as well, buying in at today’s implied post-merger valuation ($30 billion) makes little sense, given the stock’s priced on what could happen, rather than what has happened.
Okay, how about the more bullish case. That is, Lucid lives up to Wall Street’s current expectations, and turns Tesla into a relative dinosaur? On Apr 6, InvestorPlace’s Josh Enomoto pointed out how Lucid could beat out Tesla when it comes to the higher end of the premium market.
Namely, while Tesla is trying to become a mass market vehicle, Lucid is focusing just on making EVs for the rich. This could pay off, as per Enomoto’s thesis, current economic factors do not bode well for the middle-income bracket.
There’s Enough in Play to Send This SPAC Higher Ahead of Its Merger
Adding to Enomoto’s thesis above, I can see another way Tesla’s mass-market strategy could backfire, in a way that benefits Lucid. I’m talking about the risk Tesla loses some of its brand cache, as it expands its customer base with lower-priced models.
If Teslas become more of a mass-market car, its current owner base could ditch it for something that better conveys high social status. This may allow the EV upstart to grab a major share of the premium market, and live up to expectations.
Of course, it’s a bit too early to say it’s set in stone Lucid will beat Tesla at its own game. But, with more pointing to this SPAC deal paying off for investors, there’s enough in motion to help send CCIV stock back towards $30 per share and above ahead of the deal close.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
