In the past few months Churchill Capital Corp. IV (NYSE:CCIV) stock has gone from market darling to maligned EV upstart. It has been a somewhat contradictory ride for the shell company, to say the least.
Back in early January there was a lot of speculation that the company would pursue Lucid Motors as a SPAC target. The shell company issued a statement on Jan. 19 that neither squashed nor confirmed the rumors.
CCIV stock would run up roughly 500% in the following five weeks as intrigue around Lucid and Churchill Capital Corp. continued to build. It seemed that the markets were keen to invest in another SPAC EV. However, the irony would hit on Feb. 23 when Churchill Capital announced it was indeed going to take Lucid public. CCIV shares immediately plunged roughly 40%.
Investors believed that there would be 1.2 billion shares based on a SPAC IPO price of $10 per share. That’s because the value of the acquisition of Lucid was expected to be $12 billion. Dividing $12 billion by $10 leads to the idea that there would be 1.2 billion shares following the merger.
However, the PIPE deal announced in the official statements confirmed otherwise. Lucid was valued at $24 billion at a share price of $15. Dividing 24 billion by $15 means that there are 1.6 billion shares.
So suddenly investors had a much smaller piece of the pie than they anticipated.
However, there were other factors at play as well. The markets were undergoing a period of change at that time. Happy-go-lucky beliefs that all things SPAC, EV and fundamental overvaluations would simply work out for the best were drying up. The markets are not keen to reward what the CCIV/Lucid merger represents.
It was a combination of bad timing and dilution news.
Since then, CCIV stock has come down a further 14%. From here the investment narrative can go one of two ways. Current prices are arguably a value price at which to enter a long-term position. Otherwise, investors believe Lucid doesn’t deserve to rise until cars roll off its production lines.
Investors who do buy in now must believe that Lucid will be competitive against Tesla (NASDAQ:TSLA)
Tesla in Its Sights
Lucid is gunning for Tesla in everything that it does. In many senses it is attempting to do what Tesla has done, only better. One look at its Lucid Air sedan clearly shows that Lucid believes its vehicles can out compete the Tesla S.
Pricing and specs are quite similar. Of course, the major difference is that Tesla is far, far ahead of Lucid. Investors who establish a position at today’s prices have to believe that Lucid can close that gap quickly.
Just as Tesla has built a large manufacturing footprint, so too is Lucid. Tesla has factories in California, the Netherlands, Shanghai and is opening factories in Germany and Texas this year.
Lucid is also keeping manufacturing in-house. It completed its first plant in Arizona in December. The company is choosing to maintain a hands-on approach to the critical manufacturing stage of its vehicles.
This introduces a steeper learning curve for Lucid than some of its competitors. Fisker (NYSE:FSR) outsourced the manufacturing of its Ocean EV to Magna International (NYSE:MGA). The approaches are starkly different and a bet on Lucid is a bet that it will get vertical integration right relatively quickly.
CCIV Stock Verdict
I believe that CCIV stock will trend slightly down in the near-term. For CCIV to trend upward, markets would have to do an about-face on EVs. I think that skepticism will continue to dominate the headlines in that regard.
Investors who believe in Lucid and its approach though, do have an interesting argument for establishing a position soon.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.