What happened

Shares of electric vehicle start-up Lucid Group (LCID -1.96%) were trading sharply lower on Wednesday morning. A "lockup" period for certain early investors has expired, meaning that they can now sell their shares. 

Lucid's shares were down more than 20% in early trading on Wednesday. But as of 10:45 a.m. EDT, the shares had recovered somewhat and were down about 9.5% from Tuesday's closing price.

So what

Auto investors will recall that Lucid went public via a merger with a special-purpose acquisition company, or SPAC. 

Like many SPAC deals, Lucid's included a PIPE, short for "private investment in public equity." A PIPE allows institutional investors to participate in the deal at a favorable share price in exchange for a commitment to hold their shares for a set period after the deal closes. 

In the case of the Lucid deal, that set period -- called a "lockup" period -- expired at the end of August. That means today, Sept. 1, is the first day that investors in Lucid's $2.5 billion PIPE can sell their shares. 

A white Lucid Air, a sleek electric luxury-sports sedan, in a driveway.

Lucid expects to begin deliveries of its Air electric luxury sedan before the end of the year. Image source: Lucid Group.

It's common for stocks to drop when lockup periods expire, as traders and investors anticipate a flood of new shares coming to market. That's why Lucid's stock was down this morning.

Now what

Lucid's PIPE investors included Saudi Arabia's Public Investment Fund, a Lucid investor since 2018, as well as funds and accounts managed by several big asset managers including BlackRock, Fidelity Investments, and Franklin Templeton. Those entities paid $15 per share.

To be clear, we don't know whether any of those entities are selling shares today, or whether they plan to sell any time soon. It's the possibility that they could that pushed Lucid's price down once the lockup expired.