Lucid Group (NASDAQ: LCID), the company behind the ultra-luxury electric sedan Air, is currently suffering from a nascent narrative that seeks to sow fear, uncertainty and doubt (FUD) among investors.

The attempted spread of FUD began when Lucid Group disclosed an SEC investigation earlier this week, gained prominence with yesterday’s announcement of the convertible note issuance, and then reached a crescendo when Lucid Group CEO and CTO Peter Rawlinson has disclosed his actions. liquidation. Let’s analyze each of these developments to synthesize their bullish or bearish implications.

Lucid Group (LCID) shares face bloodshed now that company faces active SEC investigation

The specter of an SEC investigation

First, as we noted in a previous article, Lucid Group has received a subpoena for additional documents in connection with an SEC investigation. While the specific scope of this investigation was not disclosed, it relates to the pre-merger period when the SPAC Churchill Capital Corp. IV (CCIV) was preparing to go public with Lucid Motors. Consistent with the pattern of a few lawsuits filed against CCIV, the SEC investigation is likely focused on Lucid Group’s inability to meet some of its pre-merger commitments, including its inability to initiate Air deliveries. EV by spring 2021 and a full year delivery target that has dropped from 6,000 units earlier this year to just 520 units today.

Readers should note that in light of the global chip shortage and resulting supply chain bottlenecks that have remained a feature of the industry for much of this year, the inability of Lucid Group to achieve its much more ambitious delivery target is understandable, especially when one takes into account the complex issues of starting up assembly lines. Either way, Lucid Group faces a punitive SEC fine in the worst-case scenario, far from the disaster the bears are proclaiming loud and clear. In fact, a proverbial punch so early in Lucid Group’s public life might even turn out to be a blessing in disguise, ensuring a corporate culture where commitments are kept, unlike the situation at Tesla (NASDAQ: TSLA) where almost no product is always delivered on time.

Lucid Group Convertible Note Offer

Next, let’s analyze Lucid Group’s convertible note offering. According to the company’s press release, it seeks to raise between $ 1.75 billion and $ 2.0125 billion by issuing senior unsecured notes convertible into common stock. “under certain circumstances and for specified periods.” In addition, if the conversion is justified, Lucid Group retains the right to settle in cash. These notes may also be redeemed for cash at the discretion of the company after December 19, 2024, provided that the LCID shares are trading at 130% of the conversion value, among other conditions.

So, as a result of this offer, there is no immediate dilution in ownership of Lucid Group, and the company earns a significant buffer on its current cash balance of $ 4.8 billion (as of Q3 2021). to finance the expansion of manufacturing capacity related to its electric vehicles and energy storage systems, increase R&D and expand its retail and service network. I don’t see a problem here. And yet, the stock is down nearly 6% in pre-market. Of course, part of this drop can be attributed to the gut reaction function of investors. But FUD’s nascent narrative likely exacerbated any downward momentum that followed.

Liquidation of Peter Rawlinson’s shares

Finally, let’s take apart the story surrounding the recently disclosed stock liquidation by Mr. Rawlinson. According to Form 4 filed with the SEC, Rawlinson liquidated 466,749 shares of Lucid Group, bringing in $ 29.751 million in the process. The FUD narrative has been refined on the timing of this sale, just before the disclosure of the SEC investigation. In fact, this sale was planned months in advance. According to Form 10-Q filed by the company, Peter Rawlinson’s fixed-term RSUs are expected to vest in sixteen quarterly installments starting December 5, 2021 (source: Form 10-Q, page 28):

“Time-based RSUs are acquired based on a performance condition and a service condition. The performance condition was met on Completion of the Merger, and the service condition will generally be over 4.0 years. The Company has allocated 13,834,748 shares of the fixed-term RSUs to the CEO which will vest in sixteen equal quarterly installments from December 5, 2021, subject to continued use.

The sale of Rawlinson’s shares is likely intended to meet tax obligations associated with the options that are now vested. It has nothing to do with the SEC investigation, and any overlap in this regard was pure coincidence.