What happened
Shares of high-flying EV start-up Lucid Group (LCID) took a hit this week after the company surprised investors with more than one piece of news. Even with a bounce on Friday morning, shares have dropped by about 20% since last Friday's close, according to data provided by S&P Global Market Intelligence.
So what
Lucid stock had been soaring after a busy month that included delivering its first cars to customers, reporting its third-quarter financial results, and having its initial product deemed MotorTrend's 2022 Car of the Year. But this week, the company disclosed it has received a subpoena from the Securities and Exchange Commission (SEC) and announced separately that it was raising $1.75 billion in new capital through a convertible notes offering. Lucid CEO and chief technology officer Peter Rawlinson also sold almost $30 million in stock at a share price above $47. That represented only about 1.5% of his holdings, however, and likely was not a factor for investors.
Image source: Lucid Group.
Now what
The SEC subpoena is related to certain projections and statements made in preparation for the company's public debut from a merger with a special purpose acquisition company (SPAC) in July 2021. It remains unclear exactly what the SEC is investigating, but regulators have been giving SPAC mergers more scrutiny recently. The long-term financial projections companies make can be aggressive, and management isn't yet held accountable in the same way as with a public company. It is expected that tougher new rules will be put in place, but investors don't know what regulators are questioning about Lucid's IPO.
Investors reacted somewhat negatively to the news of the subpoena, but the reaction was likely muted by the lack of details. It was the announcement of a capital raise that investors seemed to be mostly concerned about after it was announced Wednesday. Lucid said in its third-quarter financial update that it had $4.8 billion in cash at the close of the quarter, which investors likely assumed would carry it through its manufacturing start-up.
When the company said it would raise another $1.75 billion through a private convertible notes offering, investors hit the stock on Thursday. But after the pricing was announced Friday morning, the stock bounced back some. The terms appear favorable to Lucid, with a 1.25% annual interest rate.
The conversion price of $54.78 per share is also appealing to existing shareholders, as the stock recently traded at about $38 per share. But after the stock had almost tripled in the three months since September, it's not surprising that a flurry of news bringing questions and uncertainty would hit the stock hard.
Investors in Lucid should know it's an aggressive investment that will need many years to play out. They'll have to be comfortable with volatility along the way.
