Churchill Capital IV (NYSE:CCIV) finally completed its SPAC merger July 26, becoming Lucid Group (NASDAQ:LCID). As trading shifted to Nasdaq from the New York Stock Exchange, the newly minted LCID stock price rose 10% on the debut.
But investors remain just as unclear about the company’s prospects as ever. Lucid gave back the gain, and more, over the next three trading sessions. LCID closed July 30 at $24.25 a share. That’s still a market capitalization of $38.4 billion and, since the company raised the money to start production, it’s not based on anything.
Lucid was fortunate to get to the finish line. Retail investors were too busy speculating to vote on the deal. Management had to extend their deadline a day to get the votes in.
Last year’s excitement over electric cars has turned to cynicism. The collapse of Lordstown Motors (NASDAQ:RIDE), and the loss by Workhorse Group (NASDAQ:WKHS) on the U.S. Postal Service contract, have analysts questioning the future of electric start-ups and to some extent of all electrics.
Oil-Rich Saudis Hit Big on LCID Stock
People who oppose electric cars were quick to point out that Saudi Arabia is the big winner in the LCID deal.
On paper, that’s true. The Oil Kingdom’s Public Investment Fund (PIF) put $2.9 billion into Lucid over the years and the stake is now worth over $20 billion. But it’s still all paper, until Lucid starts producing its Air sedan and other cars at the factory it’s building in Arizona.
The Saudis bought into Lucid on the assumption that its second factory would be on Arabia peninsula, desperate to create high paying, real jobs for its people. Riyadh has grown rich from oil, but oil won’t last forever, and without new sources of wealth the kingdom will collapse.
With Brent crude, the main international grade, selling at $75 a barrel, that future seems far-fetched and far-off. But it’s just as real today as it ever was. The Kingdom has put over $20 billion into renewable energy. It expects to produce 30 gigawatts of solar power per year in 2025. The Kingdom has put even more money into water desalination.
When Will the Promise Become Lucid
Now that the deal is done, the work can begin… perhaps bringing some clarity to the thesis.
CEO Peter Rawlinson, a former Tesla (NASDAQ:TSLA) designer, said 10,000 pre-orders have been filed for his Lucid Air sedan, with deposits of up to $7,000. Lucid claims the Air will have a range of over 500 miles, which is more than the competing Tesla model. Lucid is also planning a second car, an SUV dubbed “Project Gravity.” Rawlinson said initial builds were going smoothly and deliveries could start later this year. The company could produce over 20,000 cars in 2022.
If all goes to plan, Lucid could quickly justify the Saudi confidence. Based on cost and value comparisons to Tesla, our Mark Hake estimates LCID stock could nearly double. This is based on an investment slide deck released in May. That’s still less than what CCIV was selling for in February, when electric vehicle hype was at its height.
The Bottom Line
Lucid is now where Tesla was five years ago. Its challenge is successfully scaling production, of both cars and batteries.
Tesla achieved that, creating the road map that Rawlinson is following. But the market today isn’t what it was five years ago. General Motors (NYSE:GM) and Ford Motor (NYSE:F) are both committed to electrics. Volkswagen (OTCMKTS:VWAGY) has turned itself inside-out to become an electric car player. Chinese manufacturers like Nio (NYSE:NIO), with their low labor costs, dominate the market. There’s not yet enough charging infrastructure for all these cars, as I’ve written.
But this is now a real market, and someone besides Tesla is going to be a winner. Will it be one of the existing carmakers, or is there room for a second start-up? We’re about to find out. Place your bets.
On the date of publication, Dana Blankenhorn 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.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future, now available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
