Editor’s Note: This article was updated on March 10, 2021 to correct the spelling of Lucid CEO Peter Rawlinson’s name.
The jig is up on Churchill Capital IV (NYSE:CCIV). CCIV Stock is less than half of where it was a mere three months ago. What happened?
They call it “special purpose acquisition (SPAC) investing.”
It’s nothing of the sort. It’s Texas Hold ‘Em, and only the dealer has the aces.
CCIV stock is merely Exhibit A. The SPAC was founded by former Citigroup (NYSE:C) executive Michael Stuart Klein. (There’s a billionaire Michael Klein) in Brazil so we use this one’s middle name.)
Klein made his mark getting Dow (NYSE:DOW) and Dupont (NYSE:DD) together. Lately, he has been spinning out SPACs like they’re paper.
Which they are.
CCIV is buying Lucid Motors, yet-another electric car start-up. The deal values Lucid at $24 billion. The deal is giving Lucid $4.4 billion to make its dreams come true.
For those who bought on the deal, however, this has been a nightmare.
The Lucid Deal and CCIV Stock
CCIV stock spiked in February on rumors of the deal. It kept rising purely on hype. Some of the hype was based on backing from Saudi Arabia’s sovereign wealth fund. These are the geniuses who helped Masayoshi Son launch WeWork.
Once the papers were signed, the stock crashed for the simple reason there is no car. Lucid is yet-another Tesla (NASDAQ:TSLA) wannabe. The man behind Lucid, Peter Rawlinson, had been the chief engineer on the Tesla Model S.
Rawlinson says his all-electric Air sedan will have a range of 517 miles. Rawlinson says his car can outrace Tesla’s best at a quarter-mile. This author says his hair is growing back any day now. Don’t believe me? Neither do I.
History has seen this movie before. At the dawn of the auto age, there were dozens of companies and many different technologies. These included electrics.
But making cars is hard. As I wrote in 2018, Tesla itself had great difficulty scaling production. That hurdle faces every company following it.
They not only have to scale manufacturing but (more important) battery production if they’re to make any money. Lucid hasn’t done that. Elon Musk may be Henry Ford, but just because you worked for him doesn’t mean you are him.
As this reality has dawned on traders, they’ve dumped CCIV stock. Shares that sold for $57 on Washington’s birthday open March 9 around $22. As our Nicholas Chahine wrote a week ago, Lucid is a car for the “one-percenters,” for rich people that can afford the very best. The explanation of Thomas Yeung is that this stock was “mispriced.”
No, it wasn’t. This was pumped by Wall Street, then dumped by traders.
This has been 2021 in a nutshell. This is what SPACs are all about. These aren’t profitable companies being taken public. These are dogs, long shots at best, and the sheep who buy them are just waiting to be fleeced.
The winners in the coming electric car market will be Tesla, existing makers like General Motors (NYSE:GM), Toyota Motor (NYSE:TM) and Volkswagen (OTCMKTS:VLKAY), maybe a Cloud Czar like Apple (NASDAQ:AAPL) or Alphabet (NASDAQ:GOOGL) with money to burn.
The Bottom Line
Also, Michael Stuart Klein. The Wall Street guys bringing this garbage to market know exactly what they’re doing. They’ll have their fees and profits in the Caymans before small investors can get their pants on.
The lack of profitable opportunities in 2020, and the excess of capital created by the Fed and Trump Administrations, created a perfect storm for greed. Prices on what worked went to the skies, so investors were convinced to ignore fundamentals and buy hope.
When the history of this time is written, it will focus on efforts by small guys on Reddit to play the big boys’ game with stocks like Gamestop (NYSE:GME).
But SPACs are the real game. They’re where the real investor abuse lies.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
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