Churchill Capital Corp. IV Has Become More Transparent, but the Risks Still Are Very Real

Back in March, I wrote a piece discussing why investors in Churchill Capital Corp. IV (NYSE:CCIV) stock may be better off staying on the sidelines with this special purpose acquisition company (SPAC) play.

The Lucid Motors (CCIV) Plant in Arizona.
Source: Around the World Photos / Shutterstock.com

Since then, shares of CCIV stock have continued their decline. Today, Churchill Capital is currently down more than 30% since that piece was written.

There are a number of reasons for this. Sentiment in the SPAC world is waning, to put it modestly. Investors are fleeing hyper-growth names, in search of more defensive portfolio options.

Indeed, some profit-taking can be considered a prudent move, seeing how far and how fast many of these SPACs have risen.

However, in the case of Lucid Motors, the company Churchill Capital is bringing public via reverse SPAC merger, there are other catalysts at play today.

Let’s dive into a few of these catalysts, and see if the outlook has changed for this stock.

Better Clarity and CCIV Stock

One of the reasons for my previous hesitancy with CCIV stock was the lack of visibility the company was giving into its operations.

At the time, little in the way of production updates or renewed forward guidance was being provided to the market. The company had been releasing various promotional marketing messaging to the market, hyping up the Lucid Air, the company’s flagship vehicle.

However, since then, Lucid has come out with a couple intriguing announcements.

The first announcement is around a merger date. Earlier this month, the company announced Lucid would begin trading under the “LCID” ticker on the Nasdaq “soon.”

Well, at least we know what the ticker will be.

According to recent reports, the merger will likely be finalized in Q3, around the release of the Lucid Air. Whether investors will be able to remain patient until then is the question on the minds of many right now.

Lucid followed up this announcement with another tweet surrounding a user experience reveal on May 26. Investors appear eager to see what this car can do, and what’s under the blanket when the company does its reveal.

With so many other EV options finding their way into the market today, it appears investors are getting antsy with pre-revenue options like Lucid/CCIV right now.

Yes, it appears the company’s doing everything it can to provide as much visibility as possible. The question is – what will the market do between now and when production begins for the Lucid Air?

Execution Risk Persists with CCIV

As a pre-revenue play, CCIV stock appeals to a specific investor set. With the speculative mania that has come (and perhaps gone), this investor set has grown to proportions I didn’t foresee last year. However, here we are.

Risks related to the execution of these potential growth stars are meaningless in a raging bull market. When growth stocks can do no wrong, investors feel much safer putting a small amount of capital to work to catch a leg higher on the momentum train.

However, when the dust settles, investors will be forced to look at the fundamentals of whichever stock they’ve put money into. For pre-revenue companies, fundamentals are non-existent. Therefore, production milestones and extremely high initial growth rates are expected.

If these don’t materialize or fail to meet the bar of the market, stocks like CCIV can see some significant downside.

To date, it appears CCIV is on track to meet its production targets. At least, I haven’t seen news indicating anything to the contrary.

That said, I think the market will be watching closely with any specific announcements the company puts forward in the coming quarters. This is a stock with a hefty valuation still. The market will demand perfection, and investors are placing their bets on which EV SPAC’s management team they like best.

Conclusion

Lucid Motors remains an intriguing hyper-growth option for EV investors today. This is a company with a ton of potential. It’s also a company with some of the best marketing materials I’ve seen among its peers.

From what I can gather, the Lucid Air is likely to be an attractive option for EV buyers. However, the persistent question of competition is one I don’t think investors know how to price-in right now.

I think this is a stock that investors still need to be careful with. There’s certainly the potential CCIV could take off on another bull run. However, given where valuations are, I’m more worried about downside risk in the market today. And on this front, CCIV stock is far from risk-free.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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