Lucid Motors’ [LCID] special purpose acquisition company (SPAC) IPO was supposed to put the electric vehicle (EV) company in the driving seat. Lucid Motors had announced its merger with blank-cheque company Churchill Capital Corp IV [CCIV-WT] back in February and floated on 26 July. The Lucid Motors share price gained 10.6% to $26.83 in its first session, suggesting that investors were heading for the fast lane.
But since then, the California-based EV company has had to change down a gear. Within two days, the gains were wiped out and by the start of August, the price had decelerated to $23.77. But at least it is in the race. It nearly wasn’t, following a last-minute stall — two days before the planned IPO, Churchill and Lucid’s respective CEOs Michael Klein and Peter Rawlinson discovered they hadn’t got enough shareholder votes to sanction the mergers and had to make an appeal to investors to get it over the line in time.
Klein and Rawlinson cited two possible reasons for the hitch — one, bizarrely, was that emailed ballot instructions might have ended up in their spam folders. But the more likely explanation was that investors were unfamiliar with how this relatively new type of IPO merger worked. They’re likely to become more familiar with it quickly — SPACs are fast becoming the IPO route of choice for EV companies.
Lucid’s deal with Churchill Capital Corp IV was at the time one of the biggest EV SPAC IPOs to date, but it wasn’t the first.
EV stocks seeking SPAC IPOs
Electric truck maker Nikola [NKLA] went public through a SPAC last year, after being acquired by VectoIQ Acquisition Corp. Electric truck start-up Xos [XOS], bus-maker Proterra [PTRA] and charging station manufacturer EVgo [EVGO] are also among several others that have announced plans to do likewise.
It’s easy to see why the model works so well for EV companies. SPACs, for instance, allow companies to use future revenue projections to entice investor demand, which a traditional IPO offering would not countenance. Lucid and Nikola find themselves on the Nasdaq stock exchange without either having a vehicle available for purchase.
Then there’s the financing benefit. With a SPAC merger, EV companies will likely be able to hang on to their own equity, rather than surrender it through a traditional venture capital investment.
Year that every car must have net zero emissions
And of course, there’s the snowball effect — a SPAC merger gives an EV start-up access to funding for product development, enabling it to steal a march on its competitors. In such a fast-changing market, no-one wants to get left behind and more and more EV companies will feel the pressure to catch up by going down the SPAC route.
Lastly, EVs are a guaranteed market. The UK along with several countries around the world have passed laws stating that every car manufactured from 2035 must have net zero emissions. With growing commitments, it suggests that EVs are not a tremor in the auto market but a tectonic shift.
EV SPAC IPO flops
There have been some brutal corrections for several EV start-ups following the early promise and excitement of SPAC IPOs. Nikola, which debuted with a value of almost $29bn, became mired in allegations that its former CEO Trevor Milton had deliberately misled investors by over-valuing of the company.
Valuation of Nikola when it debuted
A SEC investigation followed, Milton quit and Nikola shares, which hit $65.90 two weeks after its IPO in June 2020, are now selling for just $10.21 as of close on 3 August. US EV work vehicle manufacturer Lordstown Motors [RIDE], another beneficiary of a SPAC merger, peaked at $30.75 in February just before it began public trading but had plunged nearly 80% to $6.37 on 2 August.
It, too, confirmed in mid-July that the US Department of Justice is investigating its business, including the SPAC deal and its reporting of vehicle pre-orders. And electric automaker Fisker [FSR], whose value soared to $8bn in February after it tempted investors that it would produce a sub $40,000 electric sports car, has more than halved to below $3bn five months later — although Fisker itself is now investing $10m into EV charging company Allegro’s SPAC merger.