Shares of Lucid Group (LCID 3.66%) plunged 18% on Friday after the electric-vehicle (EV) upstart announced a sizable debt sale.
Lucid intends to offer $1.75 billion in convertible senior notes to institutional investors in a private sale. These investors will also have the opportunity to purchase an additional $262.5 million in notes within 13 days from the day the debt is first issued.
Debtholders will have the option to convert their notes into Lucid's stock at a rate that will be determined during the offering. The interest rate paid by the notes will also be specified at that time.
Lucid expects to use the proceeds from the debt sale to fund its research and development program, bolster its manufacturing capabilities, and expand its distribution network. The EV-maker also said it may use some of the capital it raises to fund sustainability-focused investments.
Investors aren't excited about the prospect of having their ownership stakes diluted should the buyers of Lucid's notes decide to convert them into shares in the future. But we don't yet know the share price at which this conversion can take place, and it's possible that it could be higher than some investors currently expect.
Moreover, if Lucid's leadership team were to prudently allocate the roughly $2 billion it would receive from this debt sale, any potential dilution could be offset by the value created by the company's growth investments.
Thus, today's steep decline could prove unwarranted. And long-term investors might want to consider using today's sell-off as an opportunity to buy shares of the EV leader at a discount.