Shell company Churchill Capital Corp IV (NYSE:CCIV) will soon merge with the much-talked-about luxury electric vehicle (EV) maker Lucid Motors. Lucid appears to have the technology and strategy to threaten Tesla‘s (NASDAQ:TSLA) hegemony in the EV sector. Despite not having sold a single car, Lucid was worth a mind-boggling $104 billion at one time, more than automotive giants such as Ford (NYSE:F). The speculative euphoria leaves little margin for error in its execution, making CCIV stock an incredibly risky bet at this point.
Valuation is arguably the biggest concern for current and potential investors of CCIV stock. At its current price, the market capitalization of the company is roughly $5.78 billion. However, as my colleague, Thomas Yeung rightly points out, CCIV stockholders own 16.1% of Lucid. Therefore, Lucid is worth around $35.9 billion to CCIV stockholders (i.e., $5.78 billion / 0.161). Hence, the real question is whether it’s worth such a lofty valuation, considering Lucid has no record of selling even a single vehicle. Let’s dig into the details.
What Sets Lucid Apart?
The company is spearheaded by Tesla’s former Vice President of Engineering, Peter Rawlinson. Under his leadership, the company has made some interesting decisions to differentiate itself from its counterparts.
Lucid seems to have the technology to go toe-to-toe with Tesla. The Lucid Air’s range and efficiency are unmatched in the industry, with a range that tops out at more than 500 miles, beating the Tesla Model S. Its battery efficiency is at 4.5 miles/kWh with a 20-minute charge to 300-mile range.
Moreover, it is one of the most aero-efficient vehicles in the sector, with advanced connectivity and interior features. Some of these features include facial recognition, a pilot panel, Alexa integration, and a glass cockpit. A key differentiating element of the car is its level 3 autonomous driving capabilities, with 32 sensors. It has set the bar low with its autonomous capabilities and will be working its way up to the advanced stages.
Lucids’s ramp-up strategy is quite similar to Tesla’s. It will break into the market with a premium offering that offers stronger margins. Having achieved favorable leverage and scale, it will move towards the Lucid Air, a luxury sedan similar to the Tesla Model S with higher price points and several trim levels. Later it plans to release the Project Gravity, which will be an SUV, similar to Tesla’s Model X. Additionally, it will be relying on Electrify America for its charging network instead of building its infrastructure like Tesla.
Lucid recently provided revenue and net income forecasts for the next three years. It expects to sell 20,000 vehicles in 2022 with revenues at $2.2 billion. It expects that number to rise to $5.5 billion and roughly $10 billion in 2023 and 2024, respectively. If it can achieve these numbers, we are looking at average revenue growth of over 100% from 2022 to 2024. This is perhaps the fastest any company has grown in the industry. Lucid is not a legacy automaker; therefore, it expects its margins to be higher than its competitors. Additionally, it expects a positive EBITDA margin of 6% by 2024.
However, at this stage, we are just taking management at its word. It hasn’t proven its ability to scale and provided any guidance on how it would secure supplies. In the following months, it needs to put itself on track to achieving its projected delivery targets. It has little margin for error with its massive stock price.
The Bottom line on CCIV Stock
CCIV stock has shot up 55.76% in the past three months, amidst the hype surrounding its merger target in Lucid Motors. Lucid Motors has a solid business plan that could prove a significant challenger to Tesla down the line.
However, the risks in scaling production, delays from suppliers, supply chain management, and other elements are substantial. Therefore, it’s best to wait for a better entry point before investing in CCIV Stock or Lucid Motors in the future.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.