In September last year, Churchill Capital listed the similarly-named Churchill Capital IV (NYSE: CCIV) as a newly formed special purpose acquisition company (SPAC). A SPAC is essentially a shell company that has no commercial operations to begin with. Instead, it is formed to raise money through an IPO. This money is then used to acquire an existing company. In comparison to Tesla (NASDAQ: TSLA) stock, it is therefore no surprise that CCIV stock is fairly unknown. Nonetheless, I believe that this is about to change. Indeed, in February, the SPAC announced that it would be merging with Lucid Motors, an up-and-coming EV company, which has been called the “Tesla killer”. Although this merger is subject to shareholder approval at the end of this month, here are the reasons why I feel that CCIV stock is a better option than Tesla shares.
The potential of CCIV stock
Lucid Motors is still in its infancy, yet there are already some very promising signs. For instance, the company says that it will offer the first EV with a battery range of 500 miles. It also has a faster charging time. It is hoped that this will differentiate it from its competitors.
Such promise will hopefully translate into large profits for the company in the future. I am optimistic about this. In fact, Lucid Motors’ EV reservations have recently hit 10,000, demonstrating early significant interest. Management also looks gifted, with many team members having experience at other automotive companies, such as Tesla, Volkswagen and Ferrari. This could help the company convert this initial optimism into strong revenues and profits. This is why I am very tempted by CCIV stock at the moment.
There are a number of risks with the shares, however. Firstly, Lucid Motors is yet to sell a single vehicle. This means that it is hard to estimate how many sales it will be able to complete. There are also likely to be disruptive factors, such as production issues or negative reviews. This may hinder the growth of the company. Secondly, there is also significant competition in the EV market, especially as traditional automotive companies are starting to transition.
Why not Tesla stock?
Yet I am generally positive on the company’s prospects. Of course, many would argue that Tesla stock has a ton of potential as well. Further, due to a longer history, it could be deemed safer than CCIV stock. I don’t disagree with either of these statements. Nonetheless, I feel that Tesla has significantly less upside potential, due to its already very high valuation.
Indeed, it currently trades on a forward price-to-earnings ratio of 137. This is huge and indicates that investors are already expecting significant growth over the next few years.
Personally, I worry that Tesla will not be able to live up to these expectations. Tesla has been able to dominate the EV market for many years, and this will become harder as other carmakers, such as Lucid Motors, gain market share. As such, Tesla’s high valuation, combined with the potential of Lucid Motors, are the reasons why I prefer CCIV stock.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla and Volkswagen AG. The Motley Fool UK has recommended the following options: long December 2021 $130 calls on Ferrari. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.