It’s Not a Good Time to Buy Churchill Capital
With the shares of electric-vehicle stocks plunging, now is not a good time to buy Churchill Capital Corp IV (NYSE:CCIV) stock.
On Feb. 22, confirming a long-running rumor, Churchill Capital, a SPAC, disclosed that it would merge with Lucid Motors. A luxury EV maker run by a former chief engineer of Tesla (NASDAQ:TSLA), Lucid is clearly trying to follow in the footsteps.
In late morning trading on the day following the announcement, CCIV stock was plunging 32%. Of course, most other EV names, including Tesla and Chinese standout Nio (NYSE:NIO), also tumbled in recent days. Given this price action, along with the very high valuation of CCIV stock and the tough competition that Lucid is facing, I recommend that investors sell Churchill Capital at this point.
The Weakness of EV Stocks
Driven largely by euphoria about the move to EVs, along with exceptionally low interest rates, many EV names, including CCIV stock, reached irrationally high levels before the recent correction.
Now – with sentiment toward tech stocks in general dropping as the economy looks poised to return to normal sooner rather than later – EV stocks are sinking. Also weighing on tech names in general, and EV stocks in particular, is the recent increase in interest rates and fears that the latter trend could continue for some time.
I believe that, over the longer term, the stocks of many winning EV companies will climb, driven by autonomous driving and the subscription-based services that I’ve discussed in previous columns. Still, I think that the days of pre-revenue EV stocks soaring tremendously are probably over.
Moreover, the pre-revenue EV names with huge valuations are likely to be, at best, highly volatile in the coming weeks and months. At worst, they could decline sharply. Meanwhile, over the longer term, even some companies that do fairly well in the space could have difficulty living up to their current valuations.
The Still-Huge Valuation of CCIV Stock
Even after Churchill Capital plunged on Feb. 23, Lucid reportedly was still valued at a gigantic $52 billion. That means that, even if Lucid is very successful and generates $1 billion of revenue in three years, CCIV stock is still changing hands for 52 times its 2024 revenue. By any measure, that’s a sky-high valuation.
With Lucid still in the pre-revenue stage, poised to face (as I’ll explain in a bit) a great deal of tough competition, and investors becoming more skeptical about EV stocks, the stock’s current valuation is quite excessive.
Positive Attributes and Very Tough Competition
Lucid’s EVs appear to have some compelling features. For example, the Dream edition of the company’s Air Sedan, its initial EV, will reportedly be able to drive more than 500 miles on a single charge. Conversely, Tesla’s luxury Model Y EV has a range of just 326 miles.
Further, Lucid claims it has developed an innovative engineering technique that enables its EVs to have “smaller yet more powerful electric motors.” As a result, the company says that its EVs will have more “space for passengers and their comfort.”
And importantly, the fact that Lucid’s CEO, Peter Rawlinson, is a former VP of vehicle engineering, at Tesla, certainly greatly increases the credibility of Lucid and its claims about its vehicles.
Still, it’s also important to realize that Lucid is facing a tremendous amount of competition in the luxury EV space. In addition to Tesla, highly successful start-up Rivian, General Motors (NYSE:GM), BMW (OTCMKTS:BMWYY), Volkswagen (OTCMKTS:VWAGY), Fisker (NYSE:FSR), and Ford (NYSE:F) are among the companies looking to sell EVs to consumers with high amounts of disposable income.
In such an environment, it may be difficult for Lucid to generate enough sales to justify the gigantic valuation of CCIV stock.
The Bottom Line
In the current environment, Churchill Capital looks poised to drop further. And even in the longer term, Lucid may have trouble justifying the SPAC’s current stock price.
Therefore, I advise investors to sell CCIV stock and wait for the shares to drop to $15 to $20, along with more signs that Lucid can rise above the fray, before taking a bullish position in the name again.
On the date of publication, Larry Ramer held a long position in GM.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.