Lucid Motors predicts explosive revenue growth after announcing plans to go public by merging with Churchill Capital Corp IV (CCIV) – which fell 38% in pre-market commerce – to a valuation of $ 24 billion, according to Bloomberg.
The traders who bought the rumors – which I wrote about 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 keep his ambitious forecast – an average annual revenue growth of 198% to $ 22.8 billion in 2026, according to his presentation to investors – buying CCIV shares may be a risk to take. Here are three reasons:
- Great market opportunity
- Compelling customer value proposition
- Rapid income growth
Unfortunately for investors, it’s much easier to paint a compelling vision for the future than it is to make it happen.
(I have no financial interest in the titles mentioned).
Merger of Lucid with CCIV
To end the rumors, Lucid Motors is merging with Churchill Capital IV (CCIV), valuing the zero-revenue electric vehicle company at $ 24 billion. According to Bloomberg, this $ 24 billion represents the so-called “pro-forma equity value” of the combined companies.
This $ 24 billion comes from a capital injection of $ 2.5 billion – a so-called Private Placement in Public Equities (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 edge – as well as BlackRock, Fidelity Management and others. PIPE sold for a 50% premium over CCIV’s net asset value “which translates to roughly $ 24 billion in pro-forma value,” Bloomberg noted.
Once the deal is done, Lucid could be worth a lot more.
How? ‘Or’ What? 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 fell 38% in pre-market trading, Lucid’s value is only $ 57 billion. It is “more than 10 times the market capitalization of the start-up EV Fisker”, according to Barron’s, but quite expensive for a business with no income.
What could justify such a high price? Lucid’s financial projections are Exhibit A in this argument – but are they realistic?
If Lucid targets a sufficiently large market opportunity and can manufacture, sell, and service enough vehicles to customers willing to buy – due to its superior customer value proposition – then forecasting becomes more achievable.
Great market opportunity
Lucid targets the huge and growing luxury car market.
According to his presentation to investors, revenues will grow at a compound annual rate of 5%, from $ 496 billion in 2018 to $ 742 billion in 2026. Lucid argues that the government’s push for electric vehicles and consumer demand for these led the electric vehicle market to penetrate 5% by 2020. new car sales.
Compelling customer value proposition
Lucid says he can take a share of this market by providing clients with a compelling value proposition. Its presentation to investors breaks it down into three key elements:
- Emotionally powerful branding. Lucid is positioned as a post-luxury brand that aligns with the values of its target buyers, notably “well-being, refinement, experience and sustainability”
- Attractive product features. Lucid’s brilliant photographs of his first product – the $ 169,500 1,080-horsepower Air – showcase his “spacious and luxurious interior and” compact and efficient exterior. ” The Air’s battery efficiency of over 4.5 miles per kilowatt hour and a range of 517 miles exceeds that of the Tesla S – less than 4.0 and 412 – respectively. After Lucid announced the price of his sedan, Elon Musk lowered the price of his Model S – tweeting “The glove has been thrown away!”
- Increase in manufacturing. Lucid says its manufacturing facility in Casa Grande, Arizona, can now produce up to 34,000 units / year and will scale up to 90,000 units per year in Phase II and 365,000 units per year at full capacity.
Lucid also describes its leadership team, patents, showroom and service center plans, new models it will introduce over time, and other potential revenue streams – such as the use of its batteries to power homes and utilities – in its presentation to investors.
Rapid income growth
Lucid expects rapid revenue growth.
It will start selling a significant number of vehicles next year. Specifically, Lucid expects to be able to manufacture and sell 20,000 cars in 2022, 49,000 in 2023 and up to 500,000 cars per year (including the Air, the Gravity SUV and future models) by 2030, according to Bloomberg. .
Revenue will grow from $ 97 million in 2021 to nearly $ 23.8 billion in 2026 – a compound annual growth rate of 198%.
Meanwhile, Lucid expects to generate positive earnings before interest and taxes (EBIT) in 2025. His forecast calls for negative EBIT of around $ 1.5 billion steadily decreasing until Lucid generates EBIT of 637. million dollars in 2025 and nearly $ 1.8 billion in 2026.
Lucid CEO Peter Rawlinson told Bloomberg: “I see PSPC as just a tool, another lever to pull on, where we can accelerate our trajectory. It’s a technological race. Tesla understands this. This is why they are so valuable and Lucid also has the technology.
Can Lucid turn these dreams into reality? If you want to get into this potentially bumpy high-speed race, the 38% drop in CCIV stock offers an entry point.