Churchill Capital Corp IV ($CCIV) is a special purpose acquisition company incorporated in 2020 by Michael Klein. The company itself does not hold any significant assets or operations, however, its intention to effect a merger, acquire assets, capital stock exchange, etc. generate its value. After its IPO on Sept. 18 2020, investors were keen to learn about Kleins ability to take Lucid Motors public via a $15 billion deal.
Churchill Capital has been through quite the rollercoaster as early rumors that began in January 2021, gave $CCIV the friction required to climb its way up trading from roughly $12 a share upwards to its peak in February at $64.86 per share. A price spike that coincided with the spike of $TSLA and $NIO at the time. However these glorified returns were short lived for those who bought in late, as the day following that peak Klein publicly confirmed the Lucid Motors deal resulting in a “sell the hype” situation where the stock price plummeted down to $35 per share. Since then, $CCIV has yet to recover, to the point where it is currently trading down 60% around $18 per share, price levels that were first realized in late January.
Lucid Motors is currently known for its supply of Formula E race car batteries. Now, they are directing their hand towards the luxury EV market through its debut flagship luxury sedan, the Lucid Air. Delivery is intended by the second half of 2021, though it is important to note that production has yet to begin as it already failed to meet its original spring 2021 deadline.
What makes the Lucid Air unique is its direct attempt to target not only the luxury car market against competitors such as the Mercedes S-Class, but also the EV market as well, largely dominated by Tesla. Impressively, the efficiency, power, and bi-directional charging of the battery design will bring Lucid Motors to lead the industry, even surpassing Tesla’s capacities.
The merger between CCIV and Lucid Motors is set to close in the second quarter of 2021, and the relative direction of growth for the stock seems largely dependent on Lucid Motors ability to launch and scale its vehicle production. High expectations are directed towards its release as indicated by Lucids $40 billion market cap. However, Lucid Motors CEO Peter Rawlinson’s recent statement regarding the company's production does provide much investor confidence. In the interview, Rawlinson wouldn’t commit to the 2022 target of 20,000 vehicles and is currently targeting above 577 Lucid Air models for 2021 and “significant growth” for 2022.
Typically, SPAC’s operate under a PIPE transaction of $10. In the case of Lucid Motors and Churchill Capital however, the PIPE transaction is priced at $15 due to the price spike from the rumors in early 2021. With the current trading price of $CCIV falling back down to around $18 it has created great uncertainty among investors as to the true valuation behind Lucid Motors.
Lucid Motors have accumulated a total of $1.2 billion in total funding, including a $1 billion deal with Saudi Arabia’s PIF. Factoring in all the PIPE and Churchill Capital investors yields Lucid Motors a valuation of $24 billion. An incredibly high valuation, especially when comparing to other EV manufacturers on the market. NIO, for example, holds a valuation of $24 billion stemming from its $8 billion in revenue and 82,866 units delivered. This means Lucid is currently valued at 28% of what NIO is without a single delivery to date. In comparison, other EV startups Nikola and Fisker which also went through similar SPAC transactions, only boast a valuation around $4 billion.
Looking at the $CCIV charts, we see it has been in bearish territory for a while now, and its Relative Strength Index (RSI) remains neutral but decreases with price, confirming the downtrend. We have seen lower highs and lower lows for a while without much news to indicate a break in trend. This trend is one that appears common to similar companies such as $NIO, $NKLA, and $FSR. In all three cases there was a huge price fall off after a hard uptrend rally, only in the case of $CCIV, the trend was realized early on pre-merger.
Looking onwards in a long term scheme, Lucid does not expect positive EBITDA and free cash flow until 2025, and even then they hope to realize significantly lower gross margins of 22-23% compared to leading technology companies. By 2026, Lucid hopes to generate $2.9 billion EBITDA and $1.9 billion in free cash flow.
From the looks of it, Lucid Motors has a product that could dominate its respective market (its battery and its capacities). However, it faces a variety of issues regarding rollout, production, and scaling that need to be addressed before I think they can find success. Based on the valuations and the inability for the stock price to recover, Lucid Motors was for a long time overvalued, and is in the process of correction. It’s never a good sign when your own investors are concerned with the company valuations, and that is where I currently stand as well. Lucid Motors has indubitably created a product that could be successful in the future, but as it stands your time and money is likely going to be better spent elsewhere for the time being.