The Lucid Air sedan, which is slated to go into production at a facility in Arizona next year.
A record reverse merger deal between Lucid Motors and Churchill Capital Corp IV dropped shares in the SPAC owned by well-known investor Michael Klein Midday trading Tuesday.
The shares of the Special Purpose Acquisition Company (SPAC) were nearly halved in intraday trading and reduced to $ 30 per share. The stock was trading at approximately $ 39.40 per share early Tuesday afternoon.
The decline is due to Churchill’s shares rising more than 470% after it was first reported that the companies were in talks about a merger last month. With the official announcement of the contract on Monday evening, the companies confirmed a delay in the delivery of their first car – a luxury sedan named Air – from this spring to the second half of this year.
Peter Rawlinson, CEO of Lucid, attributed the share price decline to media reports that the expected valuation of the company was between $ 12 billion and $ 15 billion, leading to an initial misunderstanding among investors about the announced deal.
“I think the market has not yet fully understood what is going on,” he told CNBC during a Zoom interview on Tuesday afternoon. “For me, what was announced overnight was fantastically positive compared to anything previously reported.”
The equity value of the deal was higher than that range at $ 16.3 billion but would pay existing Lucid shareholders $ 11.75 billion. The deal values Lucid at an initial pro forma valuation of $ 24 billion.
Rawlinson said the rise in valuation was due to an “overwhelming” reaction from investors that resulted in an oversubscription of the private investment in public equity (PIPE) that is part of the deal. He said demand caused the PIPE to increase from $ 1 billion to $ 2.5 billion and the price per share of the PIPE to rise 50% to $ 15 per share, leading to a higher valuation have.
“I think investors looked at the $ 24 (billion) and said, ‘Oh my god,’ we thought it was between $ 12 (billion) and $ 15 (billion) … this is a disaster,” said Rawlinson. “Actually, it’s a bargain at $ 11.5 billion.”
Lucid also expects negative free cash flow through 2024 and will require $ 600 million in bridge funding by the time the deal is expected to close in the second quarter, according to a company investor presentation. Rawlinson said the delay in his first vehicle was largely due to the coronavirus pandemic.
The deal between Lucid and Churchill of Newark, California is the largest in a series of such collaborations between EV companies and so-called blank check companies. Previous SPAC deals with EV startups like Nikola, Fisker and Lordstown Motors achieved pro forma valuations of less than $ 4 billion.
The deal, announced on Monday evening, will generate approximately $ 4.4 billion in cash for expansion plans for Lucid, including the current facility in Arizona.
“I think this has enabled us to secure our future,” Rawlinson said Tuesday morning on CNBC’s “Squawk on the Street”. “This means we can safely accelerate our business model.”
Rawlinson, a former Tesla technical director and veteran of the automotive industry, joined the company as Chief Technology Officer in 2013 before taking up his duties as CEO in April 2019. According to the companies, he is expected to continue to serve in these roles.
The combined company is expected to be listed on the New York Stock Exchange under the ticker “LCID” upon closing.
Lucid was founded in 2007 as Atieva, a name it now uses for its technical and engineering division that supplies batteries for the Formula E electric circuit. The company initially focused on electric battery technology before changing its name to an electric vehicle manufacturer in 2016, three years after Rawlinson joined the company to lead technology development.
Lucid struggled with some difficulty raising capital to fund his plans until he received $ 1 billion from the Saudi Arabian sovereign wealth fund in September 2018.
The new funding is intended to support Lucid in its expansion plans. Rawlinson expects the Air to be the catalyst for a number of future all-electric vehicles, including an SUV starting production in early 2023, and cheaper vehicles across the board.
Lucid currently employs almost 2,000 people. The US is expected to employ 3,000 people domestically by the end of 2022.
The deal includes a total investment of around $ 4.6 billion. It is funded with $ 2.1 billion in cash from CCIV and a fully committed PIPE of $ 2.5 billion at $ 15 per share from the Saudi Arabian state fund, as well as funds and accounts held by BlackRock, Fidelity and managed by others.
Correction: This article has been updated to correct the store’s equity value. It’s $ 16.3 billion.