Lucid seeks to copy Tesla's wealth-generating success

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Californian startup Lucid will not start delivering to customers until later this year, but already its many admirers are betting it can mount a serious challenge to Tesla and Germany’s luxury automakers.

The brand’s high-end luxury Lucid Air electric sedan will come with more than 500 miles (805 km) of driving range and ample interior space, and a sticker price of $169,000.

Not just the cars come with a big price tag. The company, to be known as Lucid Group, could be valued at about $37 billion once it begins trading on Nasdaq after its merger with Michael Klein’s special purpose acquisition company Churchill Capital Corp. IV, which is pending approval from shareholders.

That would mean Lucid is worth around two-thirds the market value of Ford Motor, which sells more than 5 million vehicles in a normal year. Fisker, another pre-revenue electric vehicle start-up, is worth “just” $4.8 billion.

Lucid has channeled all of the excitement around a post-combustion-engine world first championed by Elon Musk, who’s leadership of Tesla helped make him the world’s second-richest person.

Even before Lucid starts generating revenue, it’s also shaping up to be quite the wealth-creation machine for company and SPAC insiders.

Though it boasts some impressive technology and experienced managers, Lucid still has a great deal to prove.

As of last month, it had reservations for barely 10,000 vehicles worth around $900 million in revenue. This is dwarfed by the almost $10 billion in cash the company expects to burn through in the next four years, in part because it’s ambitiously decided to build vehicles itself at a plant in Arizona.

As Musk would attest, making cars is hard and very capital intensive.

Like Tesla, Lucid has a huge following among amateur investors, many attracted through online platforms like Reddit.

In financial terms, Saudi Arabia’s sovereign wealth fund is the clear winner so far, thanks to a more than $1 billion investment announced in 2018. The Public Investment Fund will have a more than 60 percent stake in Lucid valued at around $23 billion. Not bad for a country whose wealth stems from the oil products electric vehicles will gradually displace.

There are almost $170 million in “transaction expenses,” implying large fees for various financial institutions who worked on the deal. That is practically a rounding error compared to Churchill, the SPAC sponsor led by Klein, a former Citigroup investment banker.

The company paid a little more than $40 million for Lucid shares and warrants that are now worth around $1.6 billion. Some are subject to performance hurdles and none can be sold for 18 months. They will likely be shared between Klein’s firm, M Klein & Co., other financial partners and a Churchill “brain trust” that includes former Apple design boss Jony Ive and former Ford CEO Alan Mulally.

Churchill declined to comment.

After exercising existing stock options, Lucid CEO Peter Rawlinson will own 12.9 million shares valued at around $300 million. The former Tesla engineer could yet make a great deal more: An executive share plan will provide him with restricted stock that the prospectus conservatively values at $556 million.

They are subject to time- and performance-based criteria that he is well on the way to meeting. He will get the whole amount if he remains in the job for four years and Lucid’s market value doubles.

Lucid declined to comment

Though much of this wealth exists only on paper for the moment, it explains why seemingly everyone in the world of business and finance wants their own SPAC. There have been fewer initial public offerings of blank-check firms lately due to heightened scrutiny from regulators and some high-profile flops.

But the hundreds that have gone public already are on the hunt for mergers, often targeting electric-vehicle companies, in part because retail investors go giddy for them. The Lucid deal is the ideal example of the riches they hope to make.

The SPAC transaction provides Lucid with $4.4 billion, a sum it’s likely to burn through in a couple of years. The company does not expect positive cash flows before 2025 and the prospectus notes it will need to raise additional funds through equity or debt.

Capital is not the only potential constraint. Germany’s automakers have woken up to the potential threat posed by upstarts like Lucid and have unveiled impressive luxury electric models such as the Mercedes-Benz EQS, Porsche Taycan and Audi e-tron GT.

This week Mercedes-Benz vowed to spend more than 40 billion euros ($47 billion) this decade to electrify its lineup.

For now Lucid is entirely focused on the relatively small market for luxury sedans. Its second electric model, an SUV, will not arrive until the end of 2023.

Churchill’s shares soared as high as $65 back in February amid a speculative fervor that has partly receded — they now fetch barely one-third as much.

If maintained, that $37 billion valuation will allow Lucid to issue more stock cheaply, if required. But at these levels it’s vulnerable to a further pullback if there are manufacturing hiccups or other disappointments — or worse of all the merger does not close as planned.

Above all Lucid needs to show it can turn paper wealth into hard cash.