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Convertible Notes and Peter Rawlinson’s Inventory Liquidation: Let’s Sort out Lucid Group’s (LCID) Budding FUD Narrative

Lucid Group (NASDAQ:LCID), the corporate behind the ultra-luxury Air electrical sedan, is at the moment affected by a budding narrative that seeks to unfold concern, uncertainty, and doubt (FUD) amongst buyers.

The try and unfold FUD started when Lucid Group disclosed an SEC investigation earlier this week, gained prominence with yesterday’s announcement associated to the issuance of convertible notes, after which reached a crescendo when the CEO and CTO of Lucid Group, Peter Rawlinson, disclosed his inventory liquidation. Let’s analyze every of those developments to synthesize their attendant bullish or bearish implications.

Lucid Group (LCID) Shares Face a Massacre Now That the Firm Is Underneath an Energetic Investigation by the SEC

The Specter of an SEC Investigation

First, as we famous in a earlier put up, Lucid Group has acquired a subpoena for extra paperwork in relation to an investigation by the SEC. Whereas the precise scope of this investigation has not been disclosed, it does pertain to the pre-merger interval when the SPAC Churchill Capital Corp. IV (CCIV) was gearing as much as take Lucid Motors public. As per the development gleaned from a few lawsuits filed in opposition to CCIV, the SEC’s probe probably facilities round Lucid Group’s incapability to fulfill a few of its pre-merger commitments, together with its failure to provoke deliveries of the Air EV by the spring of 2021 and a full-year supply goal that plunged from 6,000 models earlier this 12 months to only 520 models right now.

Readers ought to notice that, in gentle of the worldwide chip scarcity and the attendant provide chain bottlenecks which have remained an trade hallmark for a lot of this 12 months, Lucid Group’s incapability to fulfill its rather more formidable supply goal is comprehensible, particularly when considering the complicated meeting line teething issues. In any case, Lucid Group faces a punitive superb from the SEC within the worst-case situation, hardly the disaster that the bears are loudly proclaiming. In reality, a proverbial rap on the knuckle this early in Lucid Group’s public life would possibly even develop into a blessing in disguise, guaranteeing a company tradition the place commitments are revered, not like the state of affairs at Tesla (NASDAQ:TSLA) the place nearly no product is ever delivered on time.

Lucid Group’s Convertible Notice Providing

Subsequent, let’s analyze Lucid Group’s convertible notice providing. As per the corporate’s press release, it’s looking for to boost between $1.75 billion and $2.0125 billion by issuing senior, unsecured notes that may be transformed to frequent shares “in sure circumstances and through specified durations.” Moreover, if conversion is merited, Lucid Group retains the fitting to settle in money. These notes can be redeemed for money on the firm’s discretion after the nineteenth of December 2024, supplied that LCID shares are buying and selling at 130 p.c of the conversion worth, amongst different situations.

So, on account of this providing, there isn’t a quick dilution in Lucid Group’s possession, and the corporate features a large buffer to its current money steadiness of $4.8 billion (as of Q3 2021) with a purpose to finance manufacturing capability growth associated to its electrical automobiles and power storage programs, improve R&D, and broaden its retail and repair community footprint. I fail to notice an issue right here. And but, the inventory is down almost 6 p.c in pre-market buying and selling. In fact, part of this plunge might be attributed to the knee-jerk response perform of buyers. However the budding FUD narrative has probably exacerbated any ensuing bearish impulse.

Peter Rawlinson’s Inventory Liquidation

Lastly, let’s disassemble the narrative round Mr. Rawlinson’s not too long ago disclosed inventory liquidation. As per Form 4 filed with the SEC, Rawlinson has liquidated 466,749 shares of Lucid Group, netting $29.751 million within the course of. The FUD narrative has honed in on the timing of this sale, coming simply forward of the SEC investigation disclosure. In actuality, this sale was scheduled months prematurely. As per the Kind 10-Q filed by the corporate, Peter Rawlinson’s time-based RSU’s are scheduled to vest in sixteen quarterly installments starting on the fifth of December 2021 (supply: Form 10-Q, web page 28):

“Time-based RSUs vest primarily based on a efficiency situation and a service situation. The efficiency situation was glad upon the Closing of the Merger, and the service situation can be met usually over 4.0 years. The Firm granted 13,834,748 shares of the time-based RSUs to the CEO that can vest in sixteen equal quarterly installments starting on December 5, 2021, topic to steady employment.”

Rawlinson’s share sale is probably going supposed to fulfill the tax obligations associated to the choices which have vested now. This has nothing to do with the SEC investigation, and any overlap on this regard was purely coincidental.