The outlook of electric-vehicle maker Lucid Motors, which has agreed to merge with the Churchill Capital Corp IV (NYSE:CCIV) SPAC, has improved. As a result, I’m meaningfully more bullish on CCIV stock than I have been previously.
Still, given the reservation data released by the company, the tough competition in the EV sector , and, most importantly, the SPAC’s still-gigantic valuation, I continue to believe that investors should sell the shares.
Potential Strong Demand From the Middle East and an Affordable EV
Saudi Arabia looks like it could become a sizable market for Lucid. InvestorPlace editor and reporter Robert Lakin recently noted that the Middle Eastern nation is a major investor in Lucid and pointed out that the kingdom has decided to deploy EV charging infrastructure, also known as e-mobility infrastructure, in the country. Meanwhile, Arab News reported that Lucid is looking to launch dealerships in Saudi Arabia, Lakin added.
The Saudi investment in Lucid is certainly beneficial for the automaker and the owners of CCIV stock. In addition to providing Lucid with much-needed funding,it validates the company’s leadership team, its technology, and its EVs to a certain extent. Beyond that, Lakin’s reporting suggests that Saudi Arabia could actually become a major market for the company.
Saudi Arabia, of course, is a relatively wealthy nation and has many rich individuals who may very well look to purchase Lucid’s higher-end EVs. (The resume of Lucid CEO Peter Rawlinson and the company’s connection to the Saudi government might help entice a meaningful number of rich Saudis to purchase Lucid’s vehicles.)
And although Saudi Arabia is known as the world’s largest oil producer, the country has actually actively looked to become a solar energy powerhouse in recent years. Thus, it’s not very difficult to picture the country’s citizens buying tens of thousands of EVs.
So Saudi Arabia could become a very large market for Lucid. And, if the automaker gets a good reputation there, it could also do very well in neighboring countries, some of which also have many citizens with high disposable incomes.
Also bullish for Lucid and CCIV stock is the automaker’s recent statement that it would look to sell a $25,000 EV. By selling an EV that’s affordable for the middle class, the company will greatly lift its total available market, as well as meaningfully increase its top and bottom lines.
Reservations and Valuation
In her March 29 article, InvestorPlace reporter Vivian Medithi noted that Lucid had ” sold out of reservations for its $170,000 sedan.” But it turns out that “selling out,” in this case, meant that the company had 500 reservations for the EV. And, as of last month, the automaker had “more than 8,000” pre-orders altogether.
I think you know where this is going; well less than 10,000 pre-orders, many of which may not ultimately turn into sales, is not a very impressive total for CCIV stock, given the shares’ gigantic valuation.
Let’s assume that the over 8,000 reservations turns into 6,000 purchases. If the average sales price of those EVs is $130,000, the company’s revenue from those transactions would be $780 million.
That sounds impressive. But as of April 6, the valuation of CCIV stock was still above $30 billion. That means, based on our numbers, the shares were trading at a price/sales ratio of 38.5. The stock has dropped 20% since then, but its P/S ratio is doubtlessly still extremely elevated.
Competition and the Bottom Line on CCIV Stock
In a recent note about another EV maker, Fisker (NYSE:FSR), Goldman Sachs analyst Mark Delaney highlighted the tough competition facing the EV sector.
Delaney reported that around 12 electric SUVs would be launched in America by the end of 2022. And he pointed out that multiple old-time automakers, including General Motors (NYSE:GM) and Ford (NYSE:F), are starting to make EVs. GM plans to unveil 30 additional EVs within 4.5 years, he noted.
Lucid’s first EV, the Lucid Air, is a sedan, but the company’s second EV, known as the Gravity, is expected to be an SUV that will be launched in 2023.
Lucid’s uninspiring reservation totals, the very tough competition it will face, and the extremely high valuation of CCIV stock leave me bearish on the name. I would sell the shares at this point and only get back in if their price drops below $10.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.