On February 22nd, the up-and-coming electric vehicle startup, Lucid Motors, announced a merger with Churchill Capital (CCIV), a special purpose acquisition company, in one of the largest deals ever involving a SPAC. Since reported talks of the merger, the market value of CCIV, which consists of $2.1 billion in cash, has ballooned to $9.1 billion. As the deal allocated CCIV shareholders 16.1% of Lucid’s equity, the implied market value of the combined companies is now roughly $57 billion, excluding the impact of shares and warrants held by the founder, Michael Klein, and his team that are due to vest.
Churchill Capital’s shares plunged 39% on Tuesday, February 23rd, as investors weighed the prospect of rising interest rates and a consequent rotation away from expensive tech shares. Yet the terms of the deal may have helped revive CCIV investors. Churchill Capital agreed to pay $11.75 billion for Lucid’s existing business. Add the blank-check company’s $2.1 billion in cash and another $2.5 billion in cash from institutional investors and post deal equity comes out to $16.3 billion. However, the company cited a valuation of $24 billion. This is because the institutional investors agreed to buy into CCIV at $15 a share, a 50% premium to its net asset value but far below its current share price. Apply that premium to the entire equity and you get roughly $24 billion, an enormous amount for a company that has yet to begin production of its first car.
Lucid’s pitch to investors is better developed than those of most EV startups. The company is run by Peter Rawlinson, an engineer partially responsible for Tesla’s Model S. Their first vehicle boasts better battery efficiency than peers, including Tesla, and is already in preproduction. Lucid’s Chief Executive Peter Rawlinson said the company is going public “to accelerate into the next phase of our growth.” The company plans to begin deliveries of its first car, a $169,000 super-luxury all-electric sedan called the Air, in the second half of this year. If anyone has a shot at breaking into the EV market, it’s Lucid.
But even if we assume the company is somewhat of a new Tesla, and that electric vehicles rapidly replace conventional ones, plenty of questions remain. Will electric vehicles achieve better returns on capital than conventional cars, justifying higher valuations? How will manufacturers adapt to future breakthroughs in battery technology? While the future of electric vehicles remains wildly uncertain, we have seen throughout history how industries evolve as the world makes technological advances. This is only the beginning; the EV sector is on the rise and while some companies may fail, many will progress to be leaders in the industry.
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