Like many of the special purpose acquisition companies or SPACs that came before it, Churchill Capital Corp IV (NYSE:CCIV), which will merge with Lucid Motors, has seen its fair share of ups and downs. At its peak earlier this year, CCIV stock was trading hands at over $58. But that was a blip as shares are now down below $24 at time of writing.
This brings up a conundrum: is CCIV stock a discount or a nasty Venus flytrap for bulls? On the pessimistic front, I understand the desire for caution. As InvestorPlace contributor Larry Ramer pointed out, the valuation for CCIV “remains extraordinarily and unjustifiably high,” even with shares coming down from their February highs. For the record, Ramer’s piece was published on March 25 as shares opened at $21.71.
No doubt, CCIV stock is an aspirational investment. But recently, Lucid Motors added some substance to its ambitions. Management offered a virtual look inside its massive manufacturing facility located in Arizona and it has many people buzzing about Lucid’s potential to take on electric vehicle stalwart Tesla (NASDAQ:TSLA).
Pursuing Different Path
As Barron’s pointed out, Lucid’s investment into its plant represents its operating philosophy. “Lucid is pursuing a slightly different path to market than some of its peers. It wants to be asset heavy, believing controlling manufacturing is critical for success in the auto business.”
Certainly, this entails risk. EV manufacturers Fisker (NYSE:FSR) and Canoo (NASDAQ:GOEV) are choosing to go the opposite direction with an asset-light approach. In my view, Fisker’s decision weighs heavily because the founder, Henrik Fisker, previously tried to develop his own automotive firm and failed.
Almost certainly, that first failure has given him some important business lessons. Fisker seems very comfortable in outsourcing his second attempt to Magna International (NYSE:MGA).
Still, it’s not quite an apples-to-apples comparison. And I don’t think the manufacturing process is the make-or-break component of Lucid Motors.
CCIV Stock Benefits From a Clear Economic Directive
I might get in trouble for saying this. In fact, I’m pretty sure I’m going to get an earful. But it’s possible that Tesla is (silently) driving down a road of misery as it attempts to build an EV for the masses. I just don’t see battery technology making this possible within the next few years.
Just look at the inventory of used Teslas listed under the company’s website. At time of writing, the cheapest EV I can find is above $40,000. That’s a perfect price for upper-middle-income households but it’s well out of the reach of average income earners. And this is where CCIV stock gets interesting.
You see, Lucid isn’t even bothering with the pretense of being an affordable EV maker. They’re going straight for the affluent user base — and when you’re dealing with a relatively new technology, this is the only viable user base.
From its website, the lowest-price Lucid, the Air Pure, starts at just under $70,000. Assuming no money down and a five-year payment plan with zero interest and no taxes, you’re talking close to $1,200 monthly payments.
I’m sorry but most people are not going to be able to afford this.
Furthermore, the number of households in the upper-middle-class-income range — as in your typical Tesla Model 3 owner — may could decline in the years ahead. While people are celebrating the recent blowout March 2021 jobs report, the harsh reality is that the employment level is down about 5% from pre-pandemic highs.
Further, we have systemic deflation in the economy, not inflation. Think about it this way. During the lockdowns, big businesses enjoyed lower overhead costs, government relief funds, automated and/or cloud-based services while keeping wages flat. That’s deflationary because businesses enjoy the fruits of productivity without hiring people. And it’s no surprise, then, that according to the ADP report, big business was the smallest contributor to jobs.
This isn’t great for Tesla, but it might be a boon for CCIV stock. Remember, Lucid Motors caters not to upper-middle-income folks but straight up rich people.
The Right Aspirational Direction
Frankly, if I had a choice in the matter, I’d prefer Lucid to adopt the asset-light approach. I think it’s the most reasonable choice given the crazy economic environment we’re living in. Still, at the end, I’m most enthused about Lucid’s consumer strategy.
While many heralded Tesla’s decision to build the reasonably priced Model 3 (relatively speaking), the economy unfortunately is working against this decision. I’m telling you — look at the details of the labor market and metrics such as money velocity. We have systemic deflation that will probably worsen over time.
The point about deflation is that such monetary cycles definitely impact all shades of the middle-income bracket. But it doesn’t really affect the affluent because of their wealth insulation. In the years ahead, this is the only income segment that will consistently be able to afford EVs that have four wheels and don’t look like emasculated garbage.
Of course, CCIV stock is risky as heck — don’t get me wrong there. But in EV world, this is one of the more reasonable wagers, especially at this price.
On the date of publication, Josh Enomoto held a short position in TSLA and a long position in FSR stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.