Is the Lucid Motors Lawsuit Much Ado About Nothing?

In an ironic twist, Dentons LLP revealed on Aug. 4 that the global law firm is suing Lucid Group (NASDAQ:LCID) to get the electric vehicle (EV) maker to recognize the LCID stock it should have received for legal work done for the company when it went by the name Atieva.

A photo of the Lucid Motors Air EV from 2018.
Source: ggTravelDiary / Shutterstock.com

 

Lucid completed its merger with Churchill Capital Corp. IV on July 23. Since then, LCID stock has moved sideways. 

Lucid shareholders probably don’t want the law firm messing around with the company’s future. However, if you own its stock, I would definitely be concerned that the Dentons lawsuit is just the tip of the iceberg. 

For those who consider it much ado about nothing, remember Nikola Corporation (NASDAQ:NKLA) and Lordstown Motors (NASDAQ:RIDE). They are cautionary tales about what happens when public company management and boards play fast and loose with the truth.

LCID Stock Has Traded Higher Since Original Merger Rumors

The news of Lucid’s potential merger with Michael Klein’s fourth special purpose acquisition company (SPAC) first surfaced in early January. They haven’t traded below $10 since then.

In fact, LCID stock is up 145% year-to-date through Aug. 10. All of it  after the rumor news sent its share price to an all-time high of $64.86 in mid-February. However, since early March, it’s traded in a fairly tight range between $20 and $30.

Any lawsuit for a newly-minted public company, especially one from a well-known global legal firm like Dentons, who most likely have some people within its firm to lean on for legal advice about compensation involving the issuance of shares and the transfer of shares, ought to be troubling to shareholders. 

Lucid can’t sweep this issue under the carpet. If so, it’s indicative of a culture problem at the EV startup. And that’s not good. 

If you are Michael Klein, the good news is that he and his affiliates weren’t named in the suit. The bad news is that it could shine a light on CEO Peter Rawlinson, the rest of the management team, and the board of directors. 

As BloombergLaw contributor Mike Leonard reported, Saudi Arabia’s sovereign wealth fund owns 60% of Lucid Group and stands to make more than $20 billion from its original $2.5 billion investment. 

I find it hard to believe that a law firm with almost $3 billion in global revenue would file such a lawsuit if there weren’t actual merit to its case. But, given Saudi Arabia’s involvement, this could get real interesting.

Should You Buy Given the Lawsuit?

Companies, especially tech companies, face lawsuits all the time. But usually, the suits revolve around the licensing of technology, etc. It’s rare to see a high-brow law firm having to sue a public company to get paid for services rendered. 

There’s more to this than meets the eye. As a result, I would be cautious about buying LCID stock until the company provides further clarification. Until then, all bets are off. 

Over at the r/lucidmotors subreddit page, the Redditors are slapping each other on the back for making such a blueblood investment. After all, if the Public Investment Fund (PIF) believes in Rawlinson and company, why shouldn’t Reddit investors?

I think Redditors are about to find out that appearances can be deceiving.

InvestorPlace’s tech guru Dana Blankenhorn recently discussed the challenge ahead for Lucid suggesting it was about five years behind Tesla (NASDAQ:TSLA). Only, in Tesla’s case, it didn’t have a whole whack of competitors nipping at its heels.

 

Bottom Line

Today, it’s anybody’s game to win, including Stellantis (NYSE:STLA), who plans to throw $35.6 billion over the next five years into low-emission vehicles. 

If I had to choose another relatively new EV manufacturer to invest in, I would bypass Lucid and look to China. Any of those companies are miles ahead of Lucid.  

In the meantime, this lawsuit might be much ado about nothing. Or then again, it might not. Do you feel lucky?    

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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