A record reverse merger deal between Lucid Motors and Churchill Capital Corp IV sent shares of the SPAC run by well-known investor Michael Klein tumbling in early trading Tuesday.
Shares of the special purpose acquisition company, or SPAC, were down by as much as 46% to less than $31 a share. The stock was trading at $41.95 a share as of 10:50 a.m. Tuesday.
The drop comes after shares of Churchill rose by more than 470% after it was first reported that the companies were in talks for a merger last month. In formally announcing the deal Monday night, the companies confirmed a delay in deliveries of its first car – a luxury sedan called the Air – from this spring until the second half of this year.
Lucid also expects negative free cash flow through 2024 and will need $600 million in bridge financing until the deal’s expected closure in the second quarter, according to an investor presentation by the companies.
“This is a capital intensive business,” Lucid CEO Peter Rawlinson said Tuesday during CNBC’s “Squawk on the Street.” “Our balance sheet will secure our runway through 2023.”
The deal between Newark, California-based Lucid and Churchill is the largest in a series of such tie-ups involving EV companies and so-called blank-check firms.
The equity value of the deal is $16.3 billion and would pay existing Lucid shareholders $11.75 billion. It values Lucid at an initial pro-forma valuation of $24 billion. Previous SPAC deals with EV start-ups such as Nikola, Fisker and Lordstown Motors garnered pro-forma valuations of less than $4 billion.
The deal, which was announced Monday night, will generate about $4.4 billion in cash for expansion plans for Lucid, including its current factory in Arizona.
“I think that this has enabled us to secure our future,” Rawlinson said. “This means that we can accelerate our business model in a secure manner.”
Rawlinson, an ex-Tesla engineering executive and automotive veteran, joined the company as chief technology officer in 2013 before adding CEO to his responsibilities in April 2019. He is expected to continue in those roles, according to the companies.
The combined company is expected to be listed on the New York Stock Exchange under the ticker “LCID” upon the closing of the deal.
Lucid was founded in 2007 as Atieva, a name it now uses for its engineering and tech arm that supplies batteries to electric racing circuit Formula E. The company first focused on electric battery technology before changing its name and shifting to an electric vehicle manufacturer in 2016, three years after Rawlinson joined the company to lead its technology development.
Lucid had some difficulty obtaining capital to fund its plans until September 2018 when it received $1 billion from Saudi Arabia’s sovereign wealth fund.
Rawlinson last year described SPAC deals as quick money, but not enough capital to bring a vehicle to production in-house, which has led firms such as Fisker to seek contract manufacturers.
Prior to the announcement with Klein’s firm, Rawlinson said the company had the funding to start producing the Air at a plant in Casa Grande, Arizona, which is located southeast of Phoenix.
The new funding is expected to assist Lucid in its expansion plans. Rawlinson expects the Air to be the catalyst for a lineup of future all-electric vehicles, including an SUV starting production in early 2023 and more affordable vehicles down the line.
Lucid currently employs nearly 2,000 people, with 3,000 employees expected to be added in the U.S. domestically by the end of 2022, according to the company.
The deal includes a total investment of about $4.6 billion. It is being funded by $2.1 billion in cash from CCIV and a $2.5 billion fully committed PIPE at $15 per share by Saudi Arabia’s sovereign wealth fund as well as funds and accounts managed by BlackRock, Fidelity and others.
Correction: This article has been updated to correct the equity value of the deal. It’s $16.3 billion.