Avoid Lucid Motors Stock Until the Post-Merger Dust Settles

Despite the confusion over the Special Purpose Acquisition Company (“SPAC”) deal vote on July 22, Churchill Capital IV (formerly traded as CCIV) has successfully completed its Lucid Motors (NASDAQ:LCID) merger. LCID stock opened at $25.24.

The Lucid Motors (CCIV) Plant in Arizona.

Source: Around the World Photos / Shutterstock.com

Ahead of the merger, CCIV stock rallied by around 6% to $24.25. The stock is nowhere near the highs reached before the deal announcement on Feb. 22. After the approval, what happens next?

LCID Stock Joins Electric Vehicle Segment

Investors who are hitting themselves for missing Tesla’s (NASDAQ:TSLA) 1,350% five-year return may consider LCID stock instead. From here, LCID investors need to have patience. In the near term, Lucid will enjoy the title of becoming one of the biggest new EV stocks after its delayed debut.

Lucid has more potential than Lordstown Motors (NASDAQ:RIDE), Nikola (NASDAQ:NKLA) or Workhorse Group (NASDAQ:WKHS). Each firm is stumbling in its plans to bring a product to market. Lordstown’s endurance electric truck failed to complete the Baja off-road race after just 40 miles.

Workhorse failed to win a contract with the U.S. Postal Service. Now it’s suing the USPS. It claims that the postal service did not give it due consideration. And despite fraud claims, Nikola trades with a market capitalization of $5.6 billion.

Deal Delay

Though investors approved the deal the next day, Churchill’s SPAC merger delay on July 22 is worth mentioning. Churchill Chairman Michael Klein blamed spam filters for blocking the voting invitation. He said that “it should have been mailed or emailed to all stockholders. I know this is technical. And I know that some of those emails may have gone into your spam folder or otherwise. But it’s critical and important to vote and to have the tools to vote.”

Shareholders probably voted against the up to 15 billion shares of stock available for issuance. On Reddit, investors discussed and voted for the dilution. By comparison, Tesla has under a billion shares outstanding. Nio (NYSE:NIO) has 1.64 billion shares outstanding while XPeng (NYSE:XPEV) has only 852 million.

Churchill’s second item on the voting for potential stock dilution is a very bad sign. It permits the firm to issue shares whenever it needs more cash. Churchill is signaling that investors will face massive dilution as Lucid burns billions in cash annually to fund operations.

Avoid LCID Stock for Now

Cautious investors should not buy Lucid stock for now. The second EV stock bubble in the last year peaked at the end of June. Before that, EV stocks traded to unsustainable highs between Jan. and Feb. Instead, investors should wait for the market to decide what LCID shares are worth.

Lucid has two compelling luxury EV models. Lucid is asking for $77,400 for the Lucid 2021 Air and $90,000 for the 2022 Gravity. Expect tepid unit sales growth on launch. Also, those are just the starting prices. Consumers who want the 517-mile range and 800 horsepower options will need to pay $131,500 for the Lucid Air Grand Touring model.

Lucid has 10,000 paid reservations already. Initial sales will depend on customers not canceling reservations. On the supply side, Lucid may face production delays due to the ongoing chip shortage. Unless it secured its supply with contracts months ago, expect further delays.

Lucid already missed its spring delivery timetable. At the time, it claimed it could not produce a car “at the level of quality we insist on providing.”

Your Takeaway on LCID Stock

Investors are better off buying TSLA stock or any of the China-based EV players than to bet on an unproven company. Lucid has impressive luxury EVs coming to market. Yet investors face operational risks and valuation concerns by buying the stock this week. Wait at least a few days to see how the value of LCID stock shakes out.

On the date of publication, Chris Lau 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.

Article printed from InvestorPlace Media, https://investorplace.com/2021/07/avoid-lcid-stock-until-the-post-merger-dust-settles/.

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