After 38% Plunge, Buy CCIV On Lucid’s $22.8B 2026 Revenues
Lucid Motors is forecasting explosive revenue growth after announcing its plan to go public by merging with Churchill Capital Corp IV (CCIV) — which fell 38% in pre-market trade — at a $24 billion valuation, according to Bloomberg.
Traders who bought the rumors— about which I wrote on February 17 — and sold the news have created a buying opportunity for those who see Lucid as a viable competitor to Tesla.
If Lucid can deliver on its ambitious projections — 198% average annual revenue growth to $22.8 billion in 2026, according to its investor presentation — buying CCIV stock may be a risk worth taking. Here are three reasons:
- Large market opportunity
- Compelling customer value proposition
- Rapid revenue growth
Sadly for investors, it is much easier to paint a compelling vision of the future than to make it happen.
(I have no financial interest in the securities mentioned).
Lucid’s Merger With CCIV
Putting an end to the rumors, Lucid Motors is merging with Churchill Capital IV (CCIV) valuing the revenue free electric vehicle company at $24 billion. According to Bloomberg, this $24 billion represents the combined companies’ so-called “pro-forma equity value”
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That $24 billion comes thanks to a $2.5 billion capital infusion — a so-called private placement in public equity (PIPE) led by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF) — which currently owns 85% of Lucid Motors following a $600 million injection, according to The Verge — as well as BlackRock, Fidelity Management and others. The PIPE sold for a 50% premium to CCIV’s net asset value “which translates into about $24 billion in pro-forma equity value” noted Bloomberg.
Once the deal is consummated, Lucid could be worth far more.
How so? Before the deal was announced, Lucid was valued at $92 billion based on 1.6 billion shares that will be outstanding after the merger closes in the second quarter of 2021.
Sadly, after shares plunged 38% in pre-market trading, Lucid’s value is a mere $57 billion. That’s “more than 10 times the market capitalization of EV start-up Fisker,” according to Barron’s, but pretty pricey for a company with no revenue.
What could possibly justify such a high price? Lucid’s financial projections are exhibit A in this argument — but are they realistic?
If Lucid is targeting a large enough market opportunity and can make, sell, and service enough vehicles to customers eager to buy — due to its superior customer value proposition — then the forecasts become more achievable.
Large Market Opportunity
Lucid is aiming at the luxury car market which is huge and growing.
According to its investor presentation, revenues will grow at a 5% compound annual rate from $496 billion in 2018 to $742 billion in 2026. Lucid argues that government pressure for electric vehicles and consumer demand for them led the EV market to penetrate 5% of 2020 new car sales.
Compelling Customer Value Proposition
Lucid says that it can take a piece of this market by offering customers a compelling value proposition. Its investor presentation breaks this down into three key pieces:
- Emotionally powerful branding. Lucid positions itself as a post-luxury brand that aligns with the values of its target buyers including “well being, refinement, experience, and sustainability”
- Appealing product features. Lucid’s glossy photographs of its first product — the $169,500 1,080 horsepower Air — highlight its “spacious, luxurious interior and “compact, efficient exterior.” The Air’s battery efficiency of over 4.5 miles per kilowatt hour and 517 mile vehicle range top the Tesla S’s — below 4.0 and 412 — respectively. After Lucid announced the price of its sedan, Elon Musk lowered the price of its Model S — tweeting “The gauntlet has been thrown down!”
- Scaling up manufacturing. Lucid says its Casa Grande, Ariz. manufacturing plant can now make up to 34,000 units/year and will scale to up to 90,000 units a year in Phase II and 365,00 units per year at full capacity.
Lucid also describes its executive team, patents, showroom and service center plans, new models it will introduce over time, and other sources of potential revenue — such as using its batteries to power homes and utilities — in its investor presentation.
Rapid Revenue Growth
Lucid expects to achieve rapid revenue growth.
It will begin selling significant numbers of vehicles next year. More specifically, Lucid expects to be able to make and sell 20,000 cars in 2022, 49,000 in 2023, and as many as 500,000 cars a year (including the Air, the Gravity SUV, and future models) by 2030, according to Bloomberg.
Revenues will ramp from $97 million in 2021 to nearly $23.8 billion in 2026 — a 198% compound annual growth rate.
Meanwhile, Lucid expects to generate positive earnings before interest and taxes (EBIT) in 2025. Its forecast envisions negative EBIT of about $1.5 billion diminishing steadily until Lucid generates EBIT of $637 million in 2025 and nearly $1.8 billion in 2026.
Lucid Chief Executive Officer Peter Rawlinson told Bloomberg, “I see the SPAC as just a tool, another lever to pull on, where we can accelerate our trajectory. This is a technology race. Tesla gets this. It’s why they are so valuable and Lucid also has the technology.”
Can Lucid turn these dreams into reality? If you want to go along for this potentially bumpy high speed race, CCIV stock’s 38% drop is offering an entry point.