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Did an SEC Investigation Put This Hot EV Stock on Sale?

By John Rosevear – Dec 22, 2021 at 6:30AM

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Lucid's stock took a big hit earlier this month. Was the sell-off justified?

Shares of Lucid Group (LCID 5.32%) tumbled earlier this month after the company said it had received an inquiry from the Securities and Exchange Commission. The sell-off wasn't surprising, given how scandals have pummeled other electric vehicle start-ups over the last year -- but was it justified? 

In this Motley Fool Live video, recorded on Dec. 9, Industry Focus host Nick Sciple and Motley Fool senior auto industry specialist John Rosevear look at what Lucid actually said about the SEC's inquiry, and why this isn't likely to to play out like the situations at Nikola (NKLA -10.81%) and Lordstown Motors (RIDE 5.95%) after scandalous behaviors were revealed at those companies.

A transcript follows the video.

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Nick Sciple: Lucid Motors also announced earlier this week an SEC investigation. Shares down about 18% in the past week. What's going on with Lucid?

John Rosevear: We don't know, and Lucid doesn't know. What they said in an 8-K, an SEC filing, was: We got subpoenaed for some documents. The SEC asked us to produce a bunch of documents. The documents are related to the run-up to the SPAC merger that took us public earlier in the year. We don't know exactly what they're doing, but it appears that's what they're looking at.

That's all Lucid said. The stock has gone down hard, I think, because people in this space are mindful of the past examples of companies like Nikola and Lordstown Motors, where a short-seller came out and made allegations, and then the company went away for a couple of months and huddled with some investigators, and came back and said, "Yeah, well, OK, there is something to those allegations."

This might just be the SEC doing a checkup. What I said on the day that this news broke on is that, unlike Nikola and Lordstown Motors, Lucid is shipping a vehicle that delivers on their claims. They said, our vehicle will have huge range, and it will do this, and it will do that as part of the case for supporting a merger deal, for buying the SPAC, for buying the stock. The Lucid Air is shipping, and independent testers have verified that, sure enough, it does have this great range and this advanced technology, build quality is good, and so forth. Reviews have been very positive.

So I think the risk that we saw with something like Nikola and Lordstown, where the investment case is based on these grand technological claims, promises of huge numbers of pre-orders, this kind of thing, and then that all went away, and the stock plummeted, and new management came in and had to reset and all that -- I don't think that's a likely path for this on Lucid. Sure, there may have been problems with some of the numbers, but I come back to the fact that they're shipping a car that delivered on their promises. So I think, the company will weather this, and if you still believe in the story, this might be a buying opportunity.

Sciple: There's much more of a "there" there, relative to those other names you mentioned -- Nikola, etc. There's not a car being pushed down a hill, in this case. There's a real car driving.

Rosevear: Yeah, exactly. There's a real factory building real cars, and real third-party reviewers have had their hands on them and said, "Yeah, Lucid delivered on what it said it was going to deliver." It's possible that the SPAC leadership was playing financial games or something like that. I don't know. But my sense is that Lucid will weather this just fine, whatever it is. Of course, we may have to update that view at some point. We'll see.

Sciple: There are certainly things to be concerned about, I guess, at a $65 billion market cap. I just looked here, but less of a rug-pull situation, I think, as far as the substance, than maybe we've seen with those others.

John Rosevear has no position in any of the stocks mentioned. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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