Lucid Group Inc. has been subpoenaed by the U.S. Securities and Exchange Commission (SEC) which is on the prowl for any documentation relating to its merging with a special purpose acquisition company (SPAC). Known colloquially as “blank-check firms,” these organizations literally exist to be combined with existing companies as a way to pump the stock and spur investments.
But they’ve gotten a lot of negative attention following a glut of EV startups garnering impressively high valuations based on little more than a business proposal. Those seeking an example need look no further than Nikola Corp, which was outed as having grossly overpromised on its technological capabilities and production acumen after raking it in on the stock market. As a result, financial regulators have become increasingly skeptical of SPACs and want to make sure everything going on with Lucid is above board.
According to Reuters, news of the SEC’s involvement has already dampened investments. Shares in Lucid fell 8 percent in midday trading on Monday. While currently in the midst of a rebound, it’s looking dubious that they’ll be able to close on a high note.
“The investigation appears to concern the business combination between the Company (Churchill Capital Corp. IV) and Atieva Inc and certain projections and statements,” the company said via a regulatory filing from December 3rd.
The deal, which was completed earlier this year, was with veteran dealmaker Michael Klein’s blank-check acquisition firm.
It was one of the biggest in a string of deals with Special Purpose Acquisition Companies (SPACs) that included EV makers such as Nikola Corp and Fisker Inc.
Market listing via SPAC route has become popular among EV makers that have a vision but no prototype in an already capital intensive industry.
“The problem is a lot of these companies that have taken this approach are not far enough along to really be considered a viable company,” said Sam Abuelsamid, an auto analyst at Guidehouse Insights.
Suggesting some of these companies aren’t far along enough to become viable is a massive understatement. However, we would be lying if we claimed the existing regulatory structure and overwhelming might of legacy manufacturers didn’t make it exceptionally difficult for new automotive startups to do anything other than shrivel up and die. All of these EV firms want to be the next Tesla because it actually survived long enough to mature into a real automaker (carbon credit sales notwithstanding) with a valuation that is high enough to embarrass industrial supergiants.
But too many of these EV startups have ended up being little more than tech-focused Ponzi schemes, whether or not that was the intention. To be honest, Lucid does seem to be in a much better position than other SPAC-back startups. Its founder, Peter Rawlinson, was Tesla’s former head of engineering and it’s already managed to produce functional prototypes where other startups never got past the concept phase. However, it’s still taking on sizable financial forfeitures — racking up $705 million in net losses in 2020, with another $3.18 billion vanishing during the first half of 2021.
Currently, Lucid is estimating “at least” $1.07 billion in revenue by the fifth anniversary of the Churchill IPO. The company is targeting 20,000 vehicles in 2022 and 50,000 in 2023. Meanwhile, the very pricy Lucid Air Dream Edition ($169,000 USD) has been certified by the EPA as being able to go 520 miles on a single charge, making it the longest-range EV currently in existence.
That doesn’t mean that Lucid will be safe from becoming another Nikola or Lordstown Motors — both of which went public through the use of a SPAC only to see share prices crater after scathing reports about them were released by Hindenburg Research. But it doesn’t preclude Lucid from underperforming either, especially considering its massively high valuation. Presumably, the SEC plans on looking into the pro-forma equity value of $24 billion resulting from the Churchill Capital (IV) merger. Though it may also take interest in previous rounds of funding made on behalf of state-owned Chinese businesses, like LeEco and BAIC Motor, or anyone else it deems as potentially suspect.
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