Saturday, May 21

Can Lucid Be the Next Tesla?

By: Ke Tang

Competitions in the electric vehicle industry are intense. Multiple electric vehicle startups are making promises to transform the automobile industry and beat Tesla, but only a few of them
are performing well. Lucid Motors, a startup founded in Newark, California, is one of the players
in the EV industry with an ambitious game plan to come up with “the best car in the world.”

Lucid’s mission is to inspire the adoption of sustainable transportation by creating the
most captivating luxury electric vehicles centered around the human experience. On July 23,
2021, Lucid Motors completed the previously announced merger with CCIV (Churchill Capital
Corp IV) through a SPAC deal. Bank of America served as the financial advisor of Lucid Motors
and Citigroup served as the M&A advisor of CCIV. CCIV and Lucid Motors combined at a
transaction equity value of $11.75 billion. Based on the disclosed deal details, the total
investment of approximately $4.6 billion is being funded by CCIV’s approximately $2.1 billion
in cash (assuming no redemptions by CCIV shareholders) and a $2.5 billion fully committed
PIPE (Private investment in public equity) at $15.00 per share, a 50% premium to CCIV’s net
asset value, anchored by the Public Investment Fund (PIF) as well as funds and accounts
managed by BlackRock, Fidelity Management & Research LLC, Franklin Templeton, Neuberger
Berman, Wellington Management and Winslow Capital Management, LLC.

Financing from the SPAC deal will be devoted to supporting Lucid’s ambitious
expansion plan. Designing, manufacturing, and delivering electric vehicles require significant
cashflows. Based on Lucid Motors’ investor presentations, Lucid already had reservations of
10,000 electric vehicles, and it needs the fund to produce and deliver the products. Specifically,
even if Lucid achieves full production and manages to sell 20,000 electric vehicles in 2022, they
are still projected to have a negative 2.8 billion free cash flow because of immense R&D and
operation costs. Hence, the fund needed to be raised to support Lucid’s operations and growth.
Furthermore, Lucid has an aggressive plan to penetrate a wider market. Lucid intends to continue
growing quickly to support the company’s ramp in operations, with 3,000 employees expected to
be added domestically by the end of 2022, which also need cash flow support. According to the
press release, Lucid intends to expand its manufacturing facility in Arizona, which is “the first
greenfield purpose-built EV manufacturing facility in North America.” The Arizona facility is
designed to carry a production capacity of about 365,000 units per year, and it is already in
operation for pre-production builds of the Lucid Air. On top of that, sales expansion is also
planned for international markets including Europe and the Middle East during 2022, and the
Asia Pacific thereafter. Last but not least, the transaction can enable Lucid to achieve its vision
of supplying advanced electric vehicle technologies to other automobile manufacturers and
offering energy storage solutions to communities, which aligns with Lucid’s vision of promoting
sustainability.


Although Lucid Motors has developed and come up with promising car models, it has yet
to produce nor deliver a single electric vehicle when it became public. It is still in the startup
phase of a business without realizing any profits yet. Hence, significant risks around the
company bring its stock price from 29.03 dollars since the SPAC deal to 24.11 dollars on
October 22, 2021. However, Lucid still enjoys a relatively high valuation despite that it is a
startup. The market valuation for LCID is 1.6 billion shares time the current share price, which is
around 24 dollars. It means a 39 billion dollars market cap. Considering that NIO has a market
cap of 64 billion dollars, Ford’s current market cap is at 65 billion dollars, LCID’s market cap is
about 60% of NIO’s and Ford’s. What’s worth noting is that those companies (NIO and Ford) have already produced and delivered vehicles for years. Particularly, Ford has delivered
consistently positive annual net income since 2017. The fact that the market grants Lucid Motors
such a high valuation indicates the high expectation of Lucid Motors’ future performance.

Although the business model and prospects of Lucid Motors are sexy, there are enormous
risks surrounding the company. As a company that hasn’t delivered any products yet, it is hard to
tell how its future performance will be. While its technology and value preposition are
fascinating, and it does have 10,000 reservations of electric vehicles before it went public, the
reservation does not equate to real sales. Any failure to produce or deliver those reservations will
hinder Lucid’s performance. Most importantly, it is likely that Lucid Motors will need more
money to sustain its ambitious expansion plan and R&D efforts. If they issue more shares, it
might lead to a dilution in equity value. In fact, in the released document, CCIV is authorized to
change the authorized shares from 500 million to 15 billion shares in the future, which indicates
a potential to dilute the current share price. On the other hand, if the share price after it releases
new shares equals the current share price, the market cap for Lucid Motors will be 350 billion
dollars, which makes it the 2nd largest electric vehicle company with Tesla being the largest one.

The future of Lucid Motors is promising yet unpredictable. The competitiveness
landscape of the EV industry and Lucid’s future operations are ambiguous. Lucid Motors indeed
has the potential to be the next Tesla, but it also has the chance to end up being an unsuccessful
start-up eventually. Although there are very bullish views that LCID can compete with Tesla
eventually, there is still a long way for LCID to monetarize its vision. The stock market presents
both opportunities and risks for college undergrads like us. As young investors, whether to invest
in LCID or not requires a substantial risk tolerance level and careful market analysis.

Citations

“Lucid Motors and Churchill Capital: The 4th Chapter of a Successful Spacs Saga.” Bocconi
Students Capital Markets, https://www.bscapitalmarkets.com/lucid-motors-and-churchill-
capital-the-4th-chapter-of-a-successful-spacs-saga.html.
“Lucid Investor Presentation – February 2021.” Lucid Group, Inc.,
https://ir.lucidmotors.com/lucid-investor-presentation-february-2021.
“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 Motors, https://www.lucidmotors.com/media-room/lucid-motors-public-
merger-churchill-capital-corp-iv.
“Lucid Motors Completes Construction on First Greenfield Electric Vehicle Factory in North
America.” Lucid Motors, https://www.lucidmotors.com/media-room/lucid-motors-
completes-construction-on-first-greenfield-electric-vehicle-factory-in-north-america.
Saleem, Rohail. “Yes, Churchill Capital Corp.. IV (CCIV) Is Dramatically Boosting Its
Authorized Share Capital, and No, This Is Not Definitively Bearish for Lucid Motors.”
Wccftech, Wccftech, 8 July 2021, https://wccftech.com/yes-churchill-capital-corp-iv-cciv-
is-dramatically-boosting-its-authorized-share-capital-and-no-this-is-not-definitively-
bearish-for-lucid-motors/.

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