Do you love SPACs (special purpose acquisition companies)? If so, then you may be interested in Churchill Capital IV (NYSE:CCIV), a SPAC scheduled to bring Lucid Motors public soon. In this article, I’ll go into the latest news about CCIV stock and Lucid Motors and will build my case for whether you should buy the stock or not. No fluff here, pure facts.
Before referring to my previous articles about CCIV stock and my thesis it is important to mention a very important update about this merger.
As InvestorPlace‘s Joanna Makris wrote on June 15, CCIV “filed an updated S-4/A with the Securities and Exchange Commission. The merger and IPO transaction currently values Lucid Motors at around $38 billion.”
Just remember this number of $38 billion as a valuation, which I will focus on later. Is it too high, too low, or fully justified?
I have written so far three articles on CCIV stock. In my first article, I wrote that CCIV is another speculative SPAC, that rumors are not a solid reason to buy it and the fundamentals worried me. A month later, I wrote that the fundamentals hadn’t changed for CCIV stock and wondered if Lucid Motors could become a top player in EVs since it’s joining the electric vehicle party late. I suggested people be patient with the CCIV stock, as it’s both too risky and too expensive. Finally, last month, I wrote about the lawsuits in which CCIV is embroiled and the collapse in trading volume and my lack of enthusiasm for SPACs.
Suffice to say, I haven’t recommended buying the stock, but has this changed now?
The Good Things About CCIV Stock
Several positive factors worth mentioning are the following ones.
- The production phase seems to be near, starting in late 2021.
- In an article on Teslarati it was mentioned that the $161,500 Dream Edition Lucid Air is fully reserved and that Lucid Motors plans to produce 500 of these special models. That’s $80.75 million of revenue.
- Lucid Motors plans to build 557 cars in 2021 and plans to build 20,000 cars next year.
- There are plans to expand the range of cars with a production of a sport-utility vehicle named Gravity in 2023.
- In its May 2021 Analyst Day Presentation, the company stated that it continues its expansion of the team in North America, Europe and the Middle East, with more than 2,000 employees.
- An additional expansion of the retail and service network in New York, Illinois, Arizona and California is underway.
- Its user experience (UX), which was revealed on May 26.
The Bad Things About CCIV Stock
The finalization of the de-SPAC merger is yet to occur. Could something go wrong? It’s possible. The company is still working extensively on improving the quality of its vehicles. What if it encounters hurdles? This could be detrimental for the company and hurt its brand name.
Tesla (NASDAQ:TSLA) has announced that its Model S Plaid+ has been canceled. Will this be beneficial for Lucid Motors? According to Fxstreet, “Lucid boasted that it was now the only sedan on the market with a range of more than 500 miles on a single charge. Some are beginning to question just how important this is, considering most Americans only drive about 30 miles per day on average according to a recent Car and Driver survey.”
The automotive industry is one where being the best, fastest and most innovative car maker can be key to marketing and expanding sales. But I don’t think the cancellation of Model S Plaid+ will cause Lucid Air sales so soar.
The Ugly Stuff
Earlier I mentioned the valuation of $38 billion for this merger and asked if it is justified. Before answering it I will ask the following.
A fully equipped villa is available for purchase on Mars with a great view and an SUV to explore all the exotic places. It is on sale for just $5 million now. Would you buy it?
If you answered yes then logic in investing is of very little value to you. Rather, you respond with emotions. If you answered no, then kudos, and welcome to sensible and logical investing.
This merger valued at $38 billion is like the villa on Mars: not credible at all. With sales yet to be officially reported, only reservations; no real information about revenue, profitability and free cash flows; and a hypothetical $80.75 million in revenue, which, with the supposed $38 billion value, gives a price to sales ratio of 471. This is too high for a company with no official sales yet. It is not justifiable.
The Covid-19 crisis has brought delays to the production of the Lucid Air model. With a global chip shortage, further delays may occur, and the guidance of the company about reaching the production of 20,000 cars next year seems for now extremely optimistic. Any problems related to the supply chain risk further delay to the production of the Lucid Air, which does not seem like an ideal scenario for a company eager to start delivering its electric cars and making an impact on the EV industry.
According to my analysis, if Lucid Motors wants to expand fast, then additional capital will be needed. The chances of an additional stock offering are pretty high, meaning further stock dilution is very probable. That’s a negative factor for the stock valuation.
CCIV Stock Verdict
I am a car lover. I want Lucid Motors to succeed. It seems to have a nice product. But it is trying to produce something unique, a premium luxury electric car in times of intensified competition from established automakers. Now there are plenty of options for luxury and super-fast electric cars, and plenty of electric vehicle companies for investors. An impressive range isn’t a reason for most consumers to choose Lucid Air over other electric models. Just like the Mars villa with all its promised uniqueness and exclusivity, the guidance of the company seems too optimistic. The valuation is extremely pricey. Once again, I suggest avoiding the stock. That’s based on facts and the fundamentals, not emotions.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.