Lucid (NASDAQ: LCID) stock has tanked in the past few days. Shares in the company are off 25% since the beginning of the week. Since mid-November, the stock is down by a third. Still, over the past year, the stock is up 270%.
It looks to me as if there are two key reasons why investors have been selling shares in the electric vehicle (EV) company this week.
Lucid stock headwinds
The first development is the company’s recent decision to issue $1.75bn of convertible senior notes, debt in other words. The debt carries an interest rate of 1.25% and can be converted into its shares at a predetermined rate.
Not only will this debt issue incur additional costs for the company in terms of the interest paid, but it could also dilute existing shareholders if converted. With each new share that is issued, existing shareholders’ claim on the business declines. Investors could be selling the stock to reduce their exposure to this dilution.
This debt issue is important to consider, but I do not think it is the primary reason why investors have been selling Lucid stock over the past week.
The most pressing reason is the fact that the US Securities and Exchange Commission (SEC) has subpoenaed the company seeking documents related to an investigation.
Although the exact target of the investigation has not yet been revealed, Lucid is telling investors that “the investigation appears to concern the business combination between the Company (f/k/a Churchill Capital Corp. IV) and Atieva, Inc.”
Atieva was Lucid’s former name before the corporation’s merger with the special purpose acquisition company (SPAC) Churchill Capital Corp. IV.
The SEC has launched a range of investigations recently regarding SPAC mergers. This seems to be the latest attack on these entities.
Many of the investigations revolve around whether or not these companies misled investors by providing overly optimistic financial statements. I should clarify that no statements related to Lucid accuse the business of this. The company says it is fully cooperating with the SEC.
Uncertainty prevails
As of yet, it is unclear what will happen with the investigation. It is also unclear if it will have any impact on Lucid at all. Unfortunately, it does bring an element of uncertainty into the equation. The market hates uncertainty more than anything else.
This seems to be why Lucid stock has crashed. The uncertain outlook is spooking investors.
Still, there are some reasons to be positive. The company’s first EV started rolling off the production line earlier this year. The first deliveries went out to customers in November. As production scales up, the group’s revenues should begin to grow, and the market may reflect that in its assessment of the business.
Despite this positive outlook, I am not a buyer of the stock today. I think Lucid’s outlook is just too uncertain, and the company has a lot of work to do to catch up to market leaders in the EV space.
