When Churchill Capital IV (NASDAQ:CCIV) announced a deal to acquire Lucid Motors at an $11.75 billion valuation on Feb. 22, retail investors quickly realized they got a bad deal. The drop in CCIV stock is Lucid’s gain. The transaction will give Lucid a massive cash injection to fund bringing its electric sedan to market.
Without any fundamental catalysts ahead, does Churchill stock have any significant upside in the near term?
CCIV Stock Is a Play on Infrastructure
President Joe Biden’s infrastructure spending plan addressed the need for job creation to boost the U.S. market share of plug-in electric vehicles. Biden is proposing a $174 billion investment to win the EV market. From domestic battery and parts supply, the U.S. will give consumers sales rebates and tax incentives to buy American-made EVs.
As an American automotive company specializing in EVs, Lucid is in a strong position to grow its business in the next few years. Near-term prospects appear great without the government stimulus. Lucid’s Dream Edition Lucid Air is fully reserved. The EV requires a $7,500 down payment against its total cost of $169,500. With the federal tax credit included, the limited production model will cost $161,500.
Impressive Specifications
Lucid’s luxury EV has a maximum horsepower of 1,080 and a range of 500 miles per charge. It can go from zero to 60 mph in just 2.5 seconds. With that acceleration, the EV is comparable to a supercar.
The stock’s weak performance after crashing from above $60 a share suggests that the market lacks confidence in Lucid/Churchill. The luxury EV is pricey, well above the asking price for a Tesla (NASDAQ:TSLA) Model S. Traditional automotive firms like General Motors (NYSE:GM) will cost less. Even GM’s Hummer EV will start at $79,995. Still, the company will produce only 500 Lucid Air all-EVs. Mainstream buyers may order the 406-mile range model starting at $77,400.
Opportunity
Just as investors lack a financial model to assign a fair value on Tesla stock, the same applies to CCIV shares. Readers should look at Lucid’s investor presentation that was posted in February as a starting point.
Churchill will start posting revenue when Lucid meets its expected production and delivery target in the second half of 2021. Lucid has over 10 years of design, engineering, and manufacturing record of accomplishment. This suggests that it will not fail on delivering its product on time.
Its loyal customer count is growing. Per slide 10, Lucid has over 7,500 total reservations received. That represents over $650 million in potential sales.
By targeting the luxury market, Lucid will appeal to customers who expect more. They will have the buying power to lift Lucid’s average selling price. This should increase the company’s operating margins very early. As its manufacturing capacity scales, Lucid may sell more units, reaching profitability sooner than Tesla or other EV firms.
Product Roadmap
In 2023, Lucid’s Project Gravity will result in an SUV launch. When it gets there, it will already have Lucid Electric Advanced Platform. So, it may build on its existing powertrain while adding more features and performance standards to the EV SUV. For 2030, it will have other planned sedans and SUVs.
Conversely, when Tesla first launched the Model S and X, the Model 3 and Y did not introduce any major feature changes. Tesla merely lowered the price point of its flagship products.
Lucid will stay in the luxury market from the moment it launches its first vehicle. It will continue refining components such as battery packs, inverter, motor, and transmission. And just like a software company, Lucid will update customers with the latest software over the air.
Your Takeaway
Churchill shares fell enough to wipe out the euphoria. At current levels, the stock is approaching buy levels. The infrastructure spending in the U.S. may lift all boats. Tesla will very likely rebound first because it is a widely held stock.
Investors with a five-year time horizon should take a closer look at CCIV shares.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
