It’s been an exciting month for Lucid Motors (NASDAQ:LCID) and it isn’t even half over. September began with the first deadline for private investment in public equity (PIPE) investors to offload shares, causing LCID stock to take a dive. After a week of growth, albeit with a few dips, Lucid has made another announcement to keep shareholders on their toes, stating that it will be redeeming all outstanding public warrants.
What It Means for LCID Stock
The term cashless redemption may call to mind images of an old Western film, but it is intended to demonstrate the confidence that Lucid has in its business outlook and balance sheet. It shouldn’t instantly mean bad news for those who own the stock if they are willing to hold it for the time being. Redemption day, the deadline for warrants, is set for Oct. 8, 2021.
Lucid CEO and CTO Peter Rawlinson says of the decision:
“This is an important milestone in streamlining our capital structure to eliminate outstanding public warrants at the same time as we see growing confidence in Lucid’s ground-breaking, in-house developed electric vehicle technology, which will soon arrive into the market in Lucid Air.”
He also adds that “Lucid has chosen in part to require cashless exercise of the Public Warrants to enable warrant holders, including our retail investors, to hold shares in Lucid without cash exercise. We also expect this action will minimize dilution from these public warrants.”
The What and Why of Warrants
These warrants are part of Lucid’s initial SPAC agreement that enabled it to go public. Holding a warrant grants the investor the right to purchase an amount of the company’s common stock at a set exercise or strike price.
Purchasing warrants allows investors to potentially acquire more shares for less money. That said, if the merger fails and results in the liquidation of the SPAC, those who hold warrants essentially lose their entire investment.
While warrants pose a higher risk-reward ratio, that doesn’t always make investors feel more comfortable, particularly as they are often more prone to volatility.
However, Lucid’s cashless redemption move could also be a good thing. In these situations, companies can avoid some of the share dilution that typically comes with warrant conversion. That is because cashless redemption means all warrants are automatically converted into common stock.
Where Is LCID Stock Going?
As noted, this decision follows a profitable week for holders of LCID stock. While this decision will likely cause some turbulence, it is not necessarily cause to panic.
A market maneuverer such as this indicates Lucid’s management is confident that the road ahead will be less rocky. The media buzz surrounding the company has remained constant, particularly as the month’s second deadline approaches as Lucid prepares to unveil some of its highly anticipated electric vehicles, likely another catalyst for LCID stock.
Shareholders have been advised to watch and wait as this month progresses. That recommendation holds as Lucid prepares for redemption day. Despite its grim tone, that day isn’t likely to mean anything too sinister for LCID stock.
On the date of publication, Samuel O’Brient 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.