Chances are that you have heard of a stock that goes by the ticker $CCIV – Churchill Capital IV, and if you haven’t I would suggest reading this report to see what all the hype is about. In this report I will provide you (the reader) with all the information you need to know about the upcoming merger, as well as Lucid’s plans to be a top EV competitor in the future. If you would like to keep updated on some more hype stocks in a report style similar to this one, follow my account here.
Churchill Capital IV:
Churchill Capital IV ($CCIV) is a blank check company that was formed for the purpose of completing a merger (or other business combination) with Lucid Motors (Ticker: $LCID, post-merger). Churchill Capital was founded by Michael Klein, who is expected to stay a part of the company (Lucid Motors) post-merger to create long-term value for the business.
$CCIV completed their blank-check IPO on August 3rd, 2020, in which they sold 207M shares at $10/share, generating proceed of $2.07B, which will be used later to fund the merger. Furthermore, Churchill Capital raised another $42.85M by selling 42.85M warrants for $1/warrant, this money will also be used to fund the merger.
The acquisition is said to have a pro-forma acquisition value of $11.75B and is said to be completed (in their investor presentation) by early Q3, 2021.
On February 22nd, 2021, Churchill Capital entered into an Agreement and Plan of Merger with Lucid Motors. This business combination will be consummated after a vote for the approval of the shareholders.
Lucid Motors was founded in 2007 in Newark, California, at this time their company was named “Ateiva” rather than Lucid Motors. Ateiva was originally a company that developed and sold their electric batteries and powertrains to other electric vehicle manufacturers.
By 2013, Ateiva was a recognized and respected producer of battery packs, and electric powertrains, and started to entertain the idea of developing their own electric vehicle(s). It was at this time, that the now CEO/CTO Peter Rawlinson joined the company.
In 2014, Lucid secured their first round of funding to develop their own vehicle. At this point Lucid was not putting too much thought into the design but managed to make their own 900 Horsepower (HP) vehicle that went 0-60 (MPH) in 3 seconds, and with good range.
In October of 2016, Ateiva officially decided to rebrand and change their name to Lucid Motors and started to take their vision of becoming an all-electric luxury vehicle maker very seriously. They started out of the gate very quickly, as they announced their plans to break ground in Casa Grande, Arizona and started to construct their $700M, 590-acre factory (AMP-1) in November 2016 (just one month later).
Fast forward 4 years to November 2020, and we see Phase 1 of this factory being completed, which is enabling them to produce 34,000 of their Lucid Air vehicles (1st production vehicle) annually. Furthermore, Lucid is preparing to start the 2nd phase of their factory build, which will allow them to manufacture their upcoming Gravity SUV and increase production from 34,000 vehicles per year to 90,000 vehicles per year. This phase is expected to start as soon as late 2021 and be completed by the summer of 2023.
This merger deal can be terminated under any of the following conditions:
- There is a mutual agreement between Churchill Capital IV and Lucid Motors that they want to both terminate the deal.
- The merger is not consummated by October 22nd, 2021
- Any government entity ordering/taking action to prohibit the merger.
- If there is a breach of contract by either of the companies (Churchill and Lucid), then the other company can choose to terminate the deal.
- If Churchill’s shareholders vote against the consummation of the merger.
If the acquisition falls through for any of the conditions as listed above, then Churchill Capital will gather all of their capital into a trust account and redistribute it to their existing shareholders, if this were to happen shareholders will likely receive $10/share owned. However, if Churchill gets sued, and the lawsuit is successful, then Churchill Capital is required to pay out these claims before their shareholders, which will result in a shareholder payout of less than $10 per existing share.
PIPE (Private Investment into Public Equity) Information:
Churchill Capital agreed to sell $2.5B worth of Class A common stocks to their PIPE investors. These shares were sold to the PIPE investors at a price of $15/share, which means that PIPE investors bought 166.667M shares. This is important because the $15 level that PIPE investor bought in at can be seen as a potential bottom for the stock, implying a downside (pre-merger) of 41.18%.
Under Churchill’s subscription agreement (outlining the terms for the PIPE investors), it notes that the PIPE investors are not allowed to liquidate their shares until 90 after the completion of the merger (if the SEC decided to not review the registration statement) or 150 days (if the SEC reviews the registration statement). This is very important because the PIPE investors will sell at least some of their shares the second they are legally able to, because they need to reduce their risk and diversify into other investments. Knowing this, we can expect Lucid’s share price to fall on this date due to large amounts of selling.
Experienced Management Team:
- 12 of Lucid’s 20 management team member have worked at a variety of car companies (both electric and non-electric) including Tesla, Rivian, Ford, General Motors, Hyundai, Audi, Volkswagen, Mazda, Jaguar, Land Rover, Lotus, and Ferrari.
- Peter Rawlinson (the CEO and CTO), previously worked as the Chief Vehicle Engineer of the Tesla Model S, which helps to speak on his knowledge and experience primarily in the electric vehicle space.
- Furthermore, the non-vehicle centered management members have worked on the management teams of Apple, Siemens, Intel, PayPal, Magna, eBay, Cisco, and Pillsbury previously to working at Lucid.
Lucid’s Battery Technology:
As we know, Lucid (formerly Ateiva) used to solely manufacture battery packs and electric powertrains for electric car manufacturers. Furthermore, Ateriva (which is now Lucid’s technology wing) has been producing battery packs for Formula-E racing cars for 6 seasons, which displays the history and high level of performance that Lucid’s batteries can achieve.
Additionally, Lucid’s battery has been ranked as the most efficient battery (in terms of miles/kWh), ranking at 4.5 miles/kWh, compared to Tesla’s Model S, which ranked 2nd with 4.0 miles/kWh). This higher efficiency enables Lucid’s customers to enjoy longer range, faster charging times, and lower cost battery packs.
The Lucid Air Grand Touring model has a 500-mile range, a top speed of 168 mph and a 0-60 speed of 3.0 seconds, making it very competitive with Tesla’s Model S long range edition. Lucid’s Air Grand Touring has a price tag of $139,000 compared to Tesla’s Model S Long-Range Edition’s price of $73,000. This is because Tesla has been able to achieve economies of scale to reduce their manufacturing price, whereas Lucid has just started to manufacture their vehicles. However, in 2020 Lucid plans to release their Air Pure model at a competitive price of $77,400, which will be more comparable to the prices offered by Tesla.
Lucid’s Charging Infrastructure:
- Electrify America: Lucid has announced their partnership with Electrify America, which is the second mover in the charging space (behind Tesla). Electrify America also allows 900Vcharging, which is optimal for Lucid vehicles as it allows them to charge at their fastest speeds. Electrify America currently has 600 charging stations with over 2,600 individual chargers across America. Electrify America is also growing very quickly, and a map of their reach can be found here.
- Other Partnerships: Lucid has also stated that their cars will be able to receive charging from other aggregators and station owners such as ChargePoint and EVgo.
- Lucid ID Profiles
- Facial Recognition automatically recognizes driver profiles and adjusts to their preferences.
- Predictive Analytics
- Improves the car-driver relationship by using AI to learn driver behaviours and automatically adjusts to fit these behaviours.
- Sensor Suite
- Lucid has integrated 32 onboard sensors, which is the most among production vehicles.
- Autonomous Driving
- Lucid is planned to launch their Level 2 Autonomous Driving functionality and is able to undergo software updates through the cloud.
- This is not yet close to Tesla’s autopilot; however, it is only the start of Lucid Autonomy, and is already better than many of their other competitors.
- Mass Production ready
- Although Lucid has not yet started to mass produce their cars, they have designed their cars to be readily available for mass production when the time comes in order to have a smooth transition and leverage their economies of scale.
- An example of this is their “brick” injection mould which is designed to be manufactured in the millions and be integrated into any of their cars in a single operation.
- Wunderbox Boost-Charge Technology: Wunderbox is the first bi-directional system on the market that is capable of withstanding 900V, which enables their 300kW fast charging.
- Their charging speed is approximately 6.67 minutes/100 miles of charge, compared to Tesla’s speed of 7.5 minutes/100 miles.
- Lucid has applied or been issued 407 patents: Approximately 338 of these patents have been issued to Lucid and the other 69 are still in the application process. This is good news for Lucid as they grant Lucid with a competitive edge, depending on the nature of their patents.
- Micro Lens Array (MLA) Lighting: Lucid’s MLA lighting allows their headlights to adapt to driving and weather situations to provide optimal visibility to ensure driver safety.
- An example would be if it were foggy, the car would gradually adapt to the level of fogginess to ensure the best visibility at any given time.
- Luxury Vehicle Market: The global luxury car market is expected to grow at a CAGR of 5% over the next 5 years, growing into a $733.2B industry by 2026. This presents an opportunity for Lucid to potentially capitalize on, especially with increased government mandates and incentives, and the consumers increased demand for EV’s.
- Total Addressable Market: Currently, Lucid expects to capitalize on 2% of their TAM, through their Lucid Air Sales in 2021/2022. This is a very reasonable estimate and would represent 34,000 vehicles sold. In 2023, Lucid is looking to capitalize on 2-3% of their TAM, which would be 80-90k vehicles sold. Lastly, in 2030 Lucid is expecting to capitalize on 4% of their TAM, which would translate into 600,000 vehicles sold in 2030.
- Total Annual Deliveries: Lucid is forecasting a total vehicle delivered CAGR of 88.22% between 2022-2026, which will result in 251,000 cars delivered by 2026.
- Total Revenue: Lucid id forecasting a revenue CAGR of 78.95% between 2022-2026, which would translate into $22.76B in revenue for the year of 2026.
- Pre-Orders: Lucid opened their Air models to pre-orders, where customers can reserve the car for a fee of $300-1000. Lucid opened this up in Q1 of 2021 and judging by the existing reservations, Lucid is expecting $800M in anticipated sales. However, these reservations can be cancelled, so it would be illogical to assume all of these pre-orders will translate into sales.
- Showrooms: Lucid has a direct sales strategy so that their customers can experience the car before making their decision to ensure interactions are on-brand, and pressure-free. Lucid currently has 6 showrooms in large cities across North America that are open for the public, and Lucid is planning to expand these showrooms into Europe in late 2021.
- Lucid Digital Journey: Customers can engage with Lucid via their app, website, configurator and much more. There has not been a lot of information released about this yet, but this is what they have released.
Future Application Possibilities:
- Passenger Vehicles
- Helicopters and other Aircrafts
- Heavy Equipment and Agricultural Equipment
- Energy Storage Systems
Since, $CCIV is just a shell company, and Lucid (the company becoming public) has not had to make their financial reports available to the public, it is very hard to determine any sort of price estimate or use any valuation techniques that I have learned. Also, since they are pre-revenue, it is even harder to estimate the fair value off this stock.
Th only way in which I can make any sort of valuation is to use the free cash flow forecast information that they provided in their investor presentation.
In this DCF model I arrived at a fair value per share of $29.86, which implies a share price increase of 17.02%. However, this DCF model is likely not all that accurate due to the lack of available information about Lucid’s financial position.
- Merger Date Announcement: Churchill Capital investors have been anxiously waiting on the news of the merger date to be dropped. Once this happens it could serve as a catalyst for the stock heading up to their merger date.
- Autonomous Driving: If Lucid announces that their level 3 or level 4 autonomous driving has more autonomous features and mimics that of Tesla’s autopilot, there will be excitement amongst investors, and people might buy more shares. This is especially true if you look at the EV space as a “technology race” like many others do.
- Future Improvements to their Battery Technology: Lucid has already highlighted that their battery is the most efficient and compact, however if they continue to improve upon their battery technology, then more people might find their cars useful and be willing to purchase them. If this happens their revenues might outperform, and their stock price may jump.
- Partnerships: As we know, Lucid has already partnered with many companies like Electrify America, EVgo, ChargePoint, LG etc. If the news breaks that Lucid is partnering with more companies that can help them increase their product and reach, then their stock price is likely to be affected.
- Updates on Factory Production: If Lucid is able to finish the construction of their Phases on time, or even sooner than anticipated, they will be able to produce more vehicles quicker than before thought. This should signal to investors that they are ahead of schedule and that earnings are likely to be good, causing investors to buy in.
- No Operating History and Revenues: The lack of public information on Lucid as a company may scare off some potential investors. Additionally, Lucid is a pre-revenue company, which bears a lot of uncertainty for the future. Furthermore, if future financial information comes out, and it is not near where Lucid projected it to be, then some investors will sell due to their valuations being off.
- Merger is Never Consummated: If the merger is terminated, or if they merger does not happen by October 22nd,2021, then the potential losses will be at least 60.82% (based on the current price of $25.52), and losses might even be more than that.
- The exercising of Warrants: As previously mentioned there are 42.85M warrants, these warrants can be converted into common stock upon expiry, which has the potential to dilute existing shares by up to 20%. This is not favourable for current shareholders.
- PIPE Investor Liquidation: Once the PIPE investors are able to liquidate their shares, Lucid’s stock is likely to have a massive sell off, which will hurt the share price in the short term. However, if you are bullish on this stock this may be less of a risk and more of a buying opportunity.
- Chip Shortage: The ongoing cip shortage is likely to have adverse impacts on the Lucid’s production estimates, and if Lucid is not able to meet their targets, investors may worry and potentially panic sell. Also, this will affect the DCF model that I built out and Lucid may not be undervalued due to their heightened estimates.