Churchill Capital IV Will Likely Create Shareholder Value

Stocks to buy

Following weeks of speculation, special purpose acquisition company Churchill Capital IV (NYSE:CCIV) announced it will merge with California-based Lucid Motors. Investors have been bullish on CCIV stock since the start of the year after rumors began flying about reverse merger.

A photo of the Lucid Motors Air EV from 2018.

Source: ggTravelDiary /

The shares jumped from $10 to a record high of $64.86 on Feb. 18. Now, they are near $24.

It is important to remember that Lucid Motors is still a pre-revenue auto group. Lucid CEO Peter Rawlinson recently said that orders for its first vehicle, the Lucid Air, have been “overwhelming.”

The first model is likely to be shipped in the summer of 2020. Its first-stage factory in Arizona is ready to produce 34,000 vehicles a year. Management hopes in a couple of years the number could reach 400,000 per year.

Now investors wonder what might be next for CCIV stock. Given the recent decline in price, the risk/return profile of the shares are better for buy-and-hold investors. If you are not a shareholder, you might regard upcoming dips in the share price as an opportunity to invest in this new company.

What To Expect From the Merger

Lucid Motors is vying to become leader in the luxury electric vehicle (EV) market. Over the past year, TSLA (NASDAQ:TSLA) stock is up about 300%. In general, EV market has been very hot. As a result, investors in CVIS stock have wondering if their new company could be a potential Tesla rival.

The merger values Lucid Motors at $24 billion. It will also mean Lucid will have about $4.4 billion in cash, which in part can be used to expand manufacturing, Rawlinson said:

Financing from the transaction will also be used to support expansion of our manufacturing facility in Arizona, which is the first greenfield purpose-built EV manufacturing facility in North America, and is already operational for pre-production builds of the Lucid Air, …  [with its] projected range of over 500 miles on a single charge – ahead of all competitors on the market today.

Often, the success of a black check company depends on the management team. Churchill Capital CEO Michael Klein is well-known Wall Street veteran. He has already completed several mergers.

For instance two years ago, Churchill announced a merger with Clarivate Analytics, a leading global provider of comprehensive intellectual property and scientific information, analytical tools and services.

In July 2020, Churchill Capital Corp III struck an $11 billion deal with healthcare company MultiPlan (NYSE:MPLN), in one of the largest deals for a SPAC.

So, while CCIV stock has no operating business, the management team is experienced in the SPAC space to potentially make the next deal a success. Furthermore, Saudi Arabia’s sovereign wealth fund is a strategic investor in Lucid. Therefore, the company has access to significant amounts of capital. Despite the frothy valuation of the company, investors are excited about the prospects.

Bottom Line on CCIV Stock

It is too soon to know how the share price of CCIV stock will move in the coming quarters. Lucid is still a startup automotive company with exciting prospects. A successful merger could be the start of a very appealing investment, one that many will keep their eyes on. But large amounts of capital and time are required before significant revenue will be made.

Given the interest of the Street in EVs as well as the background of the two companies, I believe the merger will create shareholder value in the long run. However, potential investors should still carefully study the risk/return profile of investing in the company at this point.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

Products You May Like

Leave a Reply

Your email address will not be published. Required fields are marked *