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Hello everyone, some of you might know me from my prior DD. It's been a minute since my last DD. To preface this, after this bear bet, I've decided to largely go back to long(er) term options plays. I'll be writing about those later.
Now, without further ado, I have been bearish on Lucid for awhile now in private conversations. I'll speak about the fundamentals later on in this post, but I wanted to focus on short term micro-trends for a bit. As you may well be aware, Lucid had a division whereby 69% of its equity was rolled over under the terms of the SPAC and 10.5% went to PIPE investors at a heightened offering of 15$ per share. The rest went to spac holders.
The reason for the heightened price was because unlike the roll over equity which has a 6 month lock up period, the PIPE investors only have a 1 month lock-up period which expires on the 1st of September. Traditionally, firms that have paid higher IPO prices have done so because they then scalp retail investors on the first day of an investor by selling it at a mark up. I see no reason why at current prices, these investors would not do so. As it stands right now, it would be a 43.33% mark up to what they paid for a month of waiting.
The market understands the volatility this will bring, which is why options are so high. Initially i wanted to get January 2022 or 2023 calls, but the IV is significantly high for even these companies. Furthermore, the price has been trending down as investors in the know exit in preparation of the severe buying pressure. While some may argue that the names behind the PIPE wouldn't sell, the truth of the matter is that they are likely eyeing the deteriorating share price and each other with concern. The way that I would most likely categorize this is a Texas standoff, which would soon devolve into a turkey shoot. You need not look far to see the effect this would have as the severe selling pressure, and small float relative to the selling pressure will have strong downward pressures on the stock which will likely compound as stop losses and retail investors head for the exits after bearing significant losses. SOFI comes to mind.
I'll briefly speak about the fundamentals of the company, even though this isn't really a long term bearish play. This company does not have economies of scale like GM, Ford, or Stellantis. This means that it doesn't have the ability to absorb high commodity costs as well as them, or so easily source chips. More specifically when I refer to commodity costs, I am especially looking at steel and aluminum. Furthermore, I look at the supply chain and logistics issues, and can't help but feel they do not have economies of scale there either. In short margin compression will be real, and they will not have the economies of scale that their competitors do to negotiate better bulk rates.
To add to this, they do not have the first movers advantage that Tesla had, nor its free marketing which allowed them to have virtually no advertising spend. They also need to produce vehicles to get regulatory credits to sell to other car companies, except those car companies are rapidly going green which means they need to buy less regulatory credits (with that said, they're more likely to buy those credits from Tesla than Lucid).
I also don't believe that they will be starting to manufacture the cars anytime soon this year (if they eve do). If they actually keep to their H2 schedule for the start of production, I believe that it will only be in late November/ early December. Their goal of 20,000 in sales for their luxury vehicle in 2022 would significantly outperform the Mustang Mach E (Which outsold the Model s), the Porsche Taycan, and every other electric sports car out there. While they may get sales to SA considering it's investments in Lucid, the logistics costs (Spot container shipping costs) and manufacturing costs would be extravagant and deeply cut into margins. Not to mention figuring out how to source the chips.
Finally, I don't think that this company is being realistic in its goals (1.689B in net income by the end of 2026, I mean come on) and considering the 1.62B shares outstanding (not including warrants) and the share based compensation that will accrue, I can't fault myself for thinking that the companies EPS even if it matched them would be unappetizing for the amount of risk involved. It would leave them with an EPS of roughly 1, which would give them a forward P/E valuation of roughly 21.5 for 2026. GM has a p/e below 5.7, while having a proven CEO with a solid vision. With that said, let's not kid ourselves and think there will not be delays to their various product lines, and other various hiccups.
If you want to invest in electric cars, do what the smart investors of old did. Invest in people that win if the sector wins, not those competing within the sector. Battery makers, lithium/nickel miners, chip manufacturers and designers, and other assorted things that go into -every- car.
Lucid Motors to Go Public in Merger with Churchill Capital Corp IV, Bolstering Lucid’s Vision to Redefine Luxury, Performance and Efficiency in the Sustainable Electric Vehicle Market | Lucid Group, Inc.
My position is on the smaller side relative to my long term positions: LCID $21.5 Put - $2.72 | Robinhood and 17 more pages - Personal - Microsoft Edge (gyazo.com)
I might open a parallel short position, but i'm undecided.