Churchill Capital IV (NYSE:CCIV) stock is still struggling to recover following the electric vehicle stock sell-off. The special purpose acquisition company (SPAC), which is merging with hot EV startup Lucid Motors, was one of the hottest names around earlier this year.
On just the rumor of its merging with Lucid, Churchill soared more than six-fold from its $10 per share SPAC offering price. But, now, the excitement’s long gone. As investors question valuations for early stage vehicle electrification plays, this stock has pulled back substantially.
After falling around 70% from its highs, it’s holding steady at around $19 per share. Yet don’t assume it’s found its floor. Many (including myself) have made the case why this upstart could supplant the current top dog in the luxury EV space, Tesla (NASDAQ:TSLA).
But focusing on just pure-play EV rivals could be short-sighted. Incumbent luxury brands are betting big as well on an all-electric future for vehicles. With their built-in advantages, they may stand in the way of this company hitting its ambitious growth targets. This doesn’t completely decimate the bull case. Yet it may signal that your best move today is to wait for shares to pull back some more before buying.
CCIV Stock, Lucid, and Luxury EV Competition
Before, I’ve discussed Lucid’s big potential to give Tesla a run for its money. In addition, I’ve made the case why Tesla, which is shifting into a “mass affluent” brand, gives this upstart a chance to grab a significant portion of the luxury segment of the electric vehicle market.
Yet it’s not as if the most high-profile EV company is (or was) its sole competition in this space. Porsche (OTCMKTS:POAHY) now offers an all-electric model. Other German luxury car makers, like BMW (OTCMKTS:BMWYY) and Daimler (OTCMKTS:DMLRY) have been slow to embrace electrification. But both are catching up quick, with upcoming offerings from their respective BMW and Mercedes-Benz marques.
Putting it simply, the incumbent luxury automakers have many advantages. They have decades of manufacturing experience, longstanding dealer networks, and established brands that signal prestige. Lucid may have billions in capital behind it and proprietary technology on its side. This may be enough for it to scale into a profitable business.
Yet whether it’s enough for it to grow in line with its prior projections is another question. Looking at said projections more critically, it becomes harder to justify the stock’s current valuation.
Giving Its Growth Projections A Second Look
Obviously, CCIV stock isn’t cheap. That’s because today’s implied valuation (around $30.7 billion, based on its post-deal share count) isn’t based on current results. Instead, it’s built on Lucid’s long-term projections. I’m talking about estimates calling for around $22.75 billion in sales, and $2.9 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA), by 2026.
But is such growth attainable? To hit these numbers, Lucid’s annual deliveries need to go from zero to 251,000 vehicles per year within the next five years. Sure, that’s less than half of Tesla’s current annual delivery numbers. Yet it may be more of an apples-to-apples comparison to compare these projections against BMW and Mercedes-Benz’s current sales levels.
In the U.S., both these brands sell around 275,000 vehicles per year. It’s one thing to argue that Lucid will be able to grab a part of the luxury segment. But, to assume its market share will zoom to incumbent-tier levels that quickly may be far-fetched. Sure, you can counter that this upstart plans to expand into Europe and China before 2026. It could make up the difference in its delivery numbers, thanks to expansion overseas.
Yet, Europe and China may wind up being tougher markets to break into. The incumbent German luxury car makers have an even larger advantage in their home turf of Europe. As for China? BMW and Mercedes have much of the Chinese luxury vehicle market locked up, and it’ll have to compete with local luxury EV makers, like Nio (NYSE:NIO), as well.
Bottom Line: Wait for Another Pullback
The threat of competition doesn’t completely decimate the bull case for Churchill, soon to be Lucid Motors, stock. There’s much pointing to this company becoming a multi-billion-dollar business in a matter of years. But giving its 2026 sales projections a second look, I’ve become more skeptical it’ll live up to expectations. Lucid may one day get to 250,000-plus deliveries per year. But this may be as far as it can scale up, given the high level of competition worldwide.
So, what’s the best move as shares hold steady near $19 per share? Wait for CCIV stock to pull back further. At levels nearing its offering price of $10 per share, the stock may make more sense from a risk/return standpoint.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
