In February, Churchill Capital IV (NYSE:CCIV) stock touched $65. As I write this, it trades at $22.
At this point, it’s important to remember that the plunge isn’t necessarily a reflection on Churchill Capital IV, or on Lucid Motors, with which the SPAC (special purpose acquisition company) is merging. Rather, as I wrote last month, CCIV stock simply ran too far.
Too many investors didn’t understand how SPACs worked, or simply didn’t care. CCIV stock kept gaining even before the details of the merger were announced. When they were, and the market realized that a $60-plus price for CCIV meant a $100 billion valuation for Lucid, the stock violent and unsurprisingly fell.
That’s all in the past. What matters for CCIV stock is what Lucid does in the future.
To be sure, Lucid still has to do quite a bit. With 1.6 billion shares outstanding post-merger, the CCIV stock price still values Lucid at a healthy $35 billion. That’s a big number for a company that hasn’t yet delivered a single vehicle.
But it’s also a number that could in retrospect look cheap if Lucid can deliver on its potential and its promises. That’s a big ‘if’, certainly. But Lucid has a big opportunity.
The Next Tesla
The simplistic case for CCIV stock is that Lucid is the next Tesla (NASDAQ:TSLA).
There is some truth to that case. Lucid chief executive officer Peter Rawlinson has said his company plans to mimic Tesla’s strategy.
Lucid is starting on the high end with its Lucid Air Dream Edition, which will have a price of $169,000. Tesla did the same with its Roadster. Lucid is bypassing dealers and using a direct sales model, just like Tesla. It’s developed a vertically integrated model with technology it developed on its own, unlike most car manufacturers that rely heavily on outsourcing.
But the case also fails on a couple points. First, Tesla had a huge advantage when it launched: there was no Tesla. In fact, there was little competition of any kind. The few electric vehicle models from major manufacturers, like the Nissan (OTCMKTS:NSANY) Leaf or the General Motors (NYSE:GM) Bolt, generally targeted the lower end of the market.
Lucid now has to deal with a competitor that is going to deliver in the range of 800,000 vehicles this year. Meanwhile, GM, Volkswagen (OTCMTKS:VWAGY) and myriad other legacy manufacturers are going big into EVs.
Can Lucid Top Tesla?
Second, since the merger was announced Lucid has tried to differentiate itself from the current EV leader. At a presentation on March 31, Rawlinson compared Lucid not to Tesla but to Daimler AG (OTCMKTS:DMLRY) unit Mercedes-Benz. Earlier in the month, he said that Tesla was a “high-tech premium product, but not true luxury.”
To hear Rawlinson tell it, Lucid might well top Tesla. That’s not to say that the CEO is criticizing the incumbent. In the presentation, he noted that Tesla was “five, six years ahead” of the competition in terms of efficiency.
But Lucid believes it can pass Tesla, measuring efficiency via miles per kilowatt-hour. In this model, kWh essentially is the EV version of miles per gallon. The Lucid Air should see 4.5 miles per kWh, against 4 for the Model S and under 3 for models from Jaguar, Porsche, and Rivian.
Simply put, Lucid thinks it can manufacture the best electric vehicle out there.
The Risks to CCIV Stock
And that’s the case for CCIV stock. It’s not that the stock is down almost two-thirds from its highs; again, those highs were simply incorrect.
It’s not that Lucid is the “next Tesla.” The EV environment is massively different than it was two years ago, let alone 15 years ago.
It’s that Lucid’s cars will be better. But note the two key words there: “will be.”
Lucid’s cars aren’t better yet, because they remain in pre-production. And while Lucid has sold out the Dream Edition, the run was only about 500 vehicles.
Lucid still has to actually make the best EV — and from there, it still has to sell those vehicles. It’s tempting to believe that the latter easily follows the former. The history shows that’s not the case.
And with a $35 billion valuation still applied to Lucid, the downside risk is obvious if the company stumbles at all.
Rawlinson is telling a great story. Some investors no doubt believe that story, and they may be proven right to do so. But it’s important to remember that, at the moment, that’s all Lucid is: a story. There’s a long way, and a lot of risk, to get from there to success.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.