The worst may not be over for special purpose acquisition (SPAC) company Churchill Capital IV (NYSE:CCIV), and investors should wait until the stock reaches a firm bottom before diving into it.
Since peaking at $64.86 per share in mid-February, CCIV stock has plunged about 70% to $19.80. And the decline may not be over. Churchill Capital IV has seen its share price steadily drop since it announced that it would conduct a reverse merger with luxury electric car maker Lucid Motors. Investors who sent the share price up 450% on rumors of the Lucid Motors deal have been quick to sell the news that the SPAC deal should conclude by the end of the current quarter.
Given the continued slide in CCIV stock, investors would be wise to steer clear of this SPAC play until the deal is finalized and the shares begin trading as Lucid Motors under the ticker symbol “LCID.”
SPAC Bust
Churchill Capital IV’s steep selloff has been primarily due to shifting investor sentiment towards SPAC deals. After SPACs’ incredible rally earlier this year, investors’ enthusiasm for them appears to have paused.
In Q1 of 2021, the value of SPAC deals surpassed the $83.5 billion that the sector had raised in all of 2020, according to data from SPAC Research. The value of SPAC listings so far this year is also more than double the $29.5 billion raised through traditional initial public offerings (IPOs). Currently, there are some 400 SPACs with $130 billion of cash looking for companies to merge with.
The incredible growth highlights the popularity of SPACs as an alternative to traditional IPOs. However, concerns have been raised on Wall Street about the SPAC boom, especially since SPACs’ targets are allowed to release forecasts and financial data that companies undergoing IPOs would not be permitted to issue. These concerns have been expressed to regulators at the Securities and Exchange Commission (SEC), which has warned that it will crack down on any SPACs that release misleading statements.
Electric Vehicle Pullback
At the same time that the shine has come off of SPAC deals, investors also seem to be taking a more cautious approach to electric vehicle stocks. After throwing money at any stock that used the abbreviation “EV” over the past year, momentum seems to have stalled when it comes to shares of companies that are part of the electric vehicle revolution. After peaking at $900 per share in January, Tesla (NASDAQ:TSLA) stock has come down 18% to $734 per share. Similarly, Chinese electric vehicle company Nio (NYSE:NIO) has seen its share price tumble 45% in the same period.
With a glut of electric vehicle stocks now available to purchase, investors seem to be focusing more on the underlying fundamentals of these companies and turning towards more traditional automotive manufacturers such as General Motors (NYSE:GM) and Volkswagen (OTC:VWAGY) that are pivoting towards electric vehicles. GM is up more than 35% in 2021.
This pullback in electric vehicle stocks does not bode well for Newark, California-based Lucid Motors, which is is run by Peter Rawlinson, the former Vice President of Engineering at Tesla. Lucid is taking aim squarely at the luxury vehicle market with its Lucid Air sedan that is priced between $69,900 for the base model and as much as $161,500 for the high-end model.
Long-Term Potential
While the current environment and timing of its SPAC deal might not be advantageous, there is reason to believe that Lucid Motors could be a good long-term investment once it makes its stock market debut. For one, the company is producing the Lucid Air at its factory in Casa Grande, Arizona.
Deliveries of the first Lucid Air electric sedans are expected to begin in June of this year. A second vehicle, an electric sport utility vehicle (SUV) called the “Gravity,” is expected to enter production in this year’s second half.
And while Lucid Motors is new to the electric vehicle space, the company is wasting no time in ramping up production. Lucid Motors has announced that it will produce 400,000 vehicles per year in 2022 and begin selling EVs in Europe next year. And with its 500-mile driving range on a single battery charge, Lucid Motors is expected to be the first legitimate threat to Tesla’s current dominance of the electric-vehicle market.
Ahead of its upcoming stock market debut, Lucid Motors has also issued strong forward guidance, stating that its annual revenues should grow nearly 200% to $22.8 billion by 2026. Early investors in Lucid Motors include Saudi Arabia’s sovereign wealth fund and investment firm BlackRock (NYSE:BLK).
Wait for the SPAC Deal to Conclude
While Lucid Motors isn’t the riskiest electric vehicle stock investors can buy, the steep drop in its share price is concerning. It’s possible that the stock will not find a bottom until after the SPAC deal is concluded and CCIV stock begins trading as LCID stock. Until then, investors should sit on the sidelines and be patient with Churchill Capital IV. Wait until a bottom has been reached and the share price begins recovering before taking a position in it.
And be sure to treat Lucid Motors stock as a long-term investment. People on the hunt for quick gains should look elsewhere.
On the date of publication, Joel Baglole held a long position in NIO.
