Will Lucid Motors Stock Struggle Like Other EV SPACs?

The widely awaited merger between EV (electric vehicle) startup Lucid Motors and Churchill Capital IV (CCIV) is scheduled for this week. It’s the most followed SPAC stock and everyone will be watching how the stock performs after the merger. What should you expect from CCIV stock as the Lucid Motors merger nears? Will the stock rise or fall after the merger?

The experience with EV SPACs hasn’t been pleasant. Fisker, Canoo, Lordstown, and Nikola all went public through the SPAC route and crashed after the merger. Lordstown and Nikola were accused of wrongdoings by Hindenburg Research. After the allegations, Nikola’s founder Trevor Milton had to quit the company. The CEO and CFO of Lordstown also subsequently resigned.

This isn't suggesting any wrongdoing at Lucid Motors, which is led by a former Tesla executive Peter Rawlinson. However, it does signal the post-merger blues that EV SPACs have faced. The list isn't exhaustive and other EV SPACs like Arrival and Lightning eMotors (ZEV) have also tumbled. ZEV trades even below the SPAC IPO price of $10.

Meanwhile, it wouldn't be fair to single out EV SPACs for the post-merger blues. SoFi, which was the other hyped merger in 2021, has also fallen sharply after the merger despite the pumping from Reddit group WallStreetBets. Clover Health, which was targeted by the group, trades below the IPO price of $10. Hindenburg also accused Clover Health of hiding material facts.

CCIV stockholders vote on July 22 and subject to approval, Lucid Motors will merge with CCIV on July 23. The merger vote seems a near certainty given the fact that CCIV stock still trades at a massive premium to the IPO price of $10. The combined entity will trade under the ticker symbol “LCID” and will list on the Nasdaq.

One of the reasons EV SPACs have fallen after the merger is because of the sell-off in the EV space. The sector’s valuations got a little too overstretched and we’ve seen a contraction of valuation multiples across the board. Tesla, which had gained 740 percent in 2020, is down almost 12 percent in 2021.

The fall in Tesla is also reflected in other EV stocks. Tesla has been a benchmark for other EV plays as well and even Wall Street analysts have used Tesla’s example to assign target prices for some of the other EV stocks. Fisker is a prime example.

Now, one way to look at the CCIV and Lucid Motors merger would be that the stock has already tumbled from its 52-week highs of $64.86 and the fall is more than that of other EV plays. However, despite the crash, Lucid Motors commands a pro forma market cap of around $36 billion. There's a high probability of a fall in Lucid Motors stock after the merger. It could be important to wait for a post-merger dip in Lucid Motors stock.

Lucid’s pro forma market cap is similar to that of Chinese EV maker Xpeng (XPEV), which is producing and delivering cars. Even if we apply the discount for Chinese stocks after China’s crackdown on tech companies, XPEV looks like a better bet.

NIO looks undervalued at a market cap of $70 billion when looking at Lucid Motors’ bloated valuations. Overall, Lucid Motors stock looks overvalued. Don’t be surprised if it crashes after the merger with CCIV is complete.

The fair value for Lucid Motors stock looks at the PIPE price of $15. The stock hasn't held on to the higher price level. After the post-merger high dies down, the stock should trend downwards towards the fair price.