After a lackluster 2022, shares of Lucid Motors Inc. (NASDAQ:LCID) spiked at the end of January on rumors that Saudi Arabia was interested in purchasing the electric car manufacturer.
A multi-billion dollar bid would not only make strategic sense for Saudi Arabia, but it could also result in a significant profit for current owners of Lucid Motors, even though the stock has lately given up some of its gains.
Purchasing the remaining stake in Lucid Motors by Saudi Arabia would make strategic sense
At the end of January, Lucid stock price increased on rumors that the Saudi Arabian sovereign wealth fund PIF was considering making a takeover bid for the electric car manufacturer.
The price of Lucid stock exploded once buyout rumors surfaced, as is customary when a company is thought to be a takeover target.
In late January, the price of Lucid surged by almost 40%, but it has since lost some of those gains. However, the stock price is still much higher than when the market contemplated the idea of a buyout bid from Saudi Arabia for the electric-vehicle firm a full week after the rumors were first revealed.
For a few reasons, I believe that the Public Investment Fund of Saudi Arabia (PIF) would be wise to accept a buyout offer.
The fact that the Public Investment Fund of Saudi Arabia (PIF) currently has a majority share in Lucid Motors is the strongest argument in favor of a hostile acquisition.
The PIF has consistently invested in preferred stock issuance in recent years to aid Lucid Motors in ramping production. The fund now controls 61% ofinves the electric car manufacturer. True, the PIF has often given money for R&D costs and prototype development in addition to production scaling.
More than a billion dollars have been invested by the PIF in recent years to help Lucid Motors become an established player in the electric vehicle (EV) market via convertible notes and Series D convertible preferred shares.
With the support of the Public Investment Fund (PIF) of Saudi Arabia, Lucid Motors is where it is now. The latest Lucid information shows that the business manufactured more than the 7,000 electric cars it projected for 2022. The PIF’s regular cash injections throughout time are a major factor in this acceleration.
Anyway, let me go back to the primary subject. Over the last several years, the PIF has been Lucid Motors’ primary financial backer, providing funds for research and development, building a manufacturing plant, and the current production ramp-up. In light of PIF’s investment in Lucid Motors, it would be prudent for the firm to purchase all of its outstanding shares.
Another reason Saudi Arabia might gain from a purchase by Lucid Motors is that the Middle Eastern country is currently an integral part of Lucid Motors’ manufacturing base and is crucial to its worldwide development goals. In February of last year, Lucid Motors and the Saudi Ministry of Investment and the Saudi Industrial Development Fund, among other parties, agreed to establish Lucid Motors’ first manufacturing site outside of the United States in the Kingdom of Saudi Arabia.
Approximately 155,000 electric cars per year may be produced at Lucid Motors’ AMP-2 factory in Saudi Arabia. Consequently, Saudi Arabia is crucial to Lucid Motors’ Middle Eastern growth. The region is being used as both an export launchpad and a production base. Additionally, Lucid Motors has launched its first Lucid Studio in Riyadh, Saudi Arabia, to display its upcoming electric automobiles.
When Might A Tight Spot Show Up?
To put it simply, more than a third of Lucid Motors’ float is shorted. Therefore, short sellers may experience a stampede to the exits as they attempt to close out their short positions in response to a formal buyout offer from Saudi Arabia.
Marketbeat reports that as of 15 January 2023, short interest in Lucid Motors has reached 165 million shares or 34.3% of the float.
Accelerating Production and Sales
As Lucid Motors builds on its previous success in expanding manufacturing, the business anticipates an increase in sales in 2023.
The electric vehicle business anticipates $2.57 billion in revenue this year, an impressive growth of 289% year-over-year. I think the electric vehicle manufacturer is in a good position to quadruple output by 2023, given that Lucid Motors has just published production numbers for 2022 that are above expectations.
Although the market may or may not place a value on Lucid Motors’ expected revenue increase this year, it would almost surely respond favorably to a formal buyout bid from Saudi Arabia’s PIF.
The 8.6x sales multiple implied by Lucid Motors’ $2.57B sales projection is a significant indicator of the company’s potential. However, investors need to remember that the EV firm is still in its infancy and that the sales multiple will decline as the company continues to show year-over-year growth in sales.
In 2024, for instance, if Lucid Motors’ sales double to $5.14 billion, the sales multiple will drop to a still-low 4.3x.
Whether or not Lucid Motors is acquired, I think its value has considerable upside potential due to its promising position in the electric vehicle industry (it has 34,000 reservations as of November 2022).
Reasons Why The Price Of Lucid Stock Could Go Up Or Down
Lucid Motors might be exposed to a public rejection from PIF that the investment firm is not interested in acquiring the electric car manufacturer in light of recent buyout rumors. The stock price of Lucid Motors may very well plummet under these circumstances.
Alternatively, if Lucid Motors receives a serious buyout offer, the share price might rise dramatically.
Conclusion
Any significant price movement in a company with a short ratio of 34% or above will cause a short squeeze (based on float). A controlling shareholder has a compelling strategic rationale to make a formal buyout bid, making the scenario intriguing (and helpful for a short squeeze).
Lucid Motors has received substantial funding from Saudi Arabia, and it would make economic sense for the firm to acquire the Kingdom’s remaining share.
The short squeeze is more likely than some investors may think, considering the short ratio and the fact that PIF now owns 61% of Lucid stock.
Featured Image: Getty Images
