Saudi Arabia’s Public Investment Fund (PIF) is ramping up its investments in the car industry with a focus on the luxury and electric vehicles markets.
This week, it revealed it was participating in a GBP550 million equity raise by the British supercar manufacturer McLaren. At the same time a SPAC merger is expected for PIF-backed Lucid Motors that is touted to give the Saudi investor a multi-billion dollar boost in asset value.
Existing McLaren shareholders, which include Bahrain’s sovereign wealth fund Mumtalakat, are investing a total of GBP150 million, while PIF and Ares Management will invest GBP400 million of new capital.
McLaren was badly hit by the pandemic and has slashed hundreds of workers in a restructuring effort overseen by Paul Walsh, who was appointed the firm’s executive chairman last year. PIF joins the company as a shareholder as it sees its fortunes recover amid growth in luxury car sales and a recovery in the group’s F1 racing business. The investment could spur commercial tie-ups with Saudi Arabia, which is looking to bolster its economic diversification efforts.
PIF’s involvement in the motor vehicle industry includes a US$1 billion investment in electric vehicle start-up Lucid Motors which gave it a majority stake in 2018. Touted as a strong rival to Elon Musk’s Tesla, Lucid could merge with special purpose acquisition company Churchill Capital Corporation IV, pending a decision by shareholders this week.
The Lucid Air model has exceeded 10,000 reservations with production plans for 20,000 vehicles in 2022. By 2026, it hopes to deliver over a quarter of a million vehicles with annual revenue at US$22.7 billion – a rate of growth that is far larger than the expected CAGR of the overall EV market and could prove unrealistic given the intense competition from other producers.
However, CCIV’s shares have endured extended losses, sliding alongside other EV companies due to fears of the Delta Covid variant and as values see some correction.
PIF’s investment decisions in the automotive sector have not all been plain-sailing, indicating the challenges facing investors seeking exposure to this new but fast-growing sector. As reported by Global SWF in February, PIF missed out on potential stock price gains of more than US$30 billion in Tesla, having dumped the stake it built in the electric carmaker in Q419. PIF had held a stake worth US$2 billion in Elon Musk's company by end-September 2019 and if it had held onto those shares, its stake would have been worth around US$33 billion by 2021.
Over the past six months Tesla’s share price has fallen by a quarter, but CCIV’s share price has tanked from a peak of around US$65 to around US$23. Nevertheless, the SPAC’s share price suggests that Lucid Motors will list at a price above US$35 billion, a level some still believe is over-valued.
Whether backing McLaren as it seeks to recover from the pandemic or investing in Lucid Motors as it moves towards listing, PIF appears to be willing to take risks to play a role in the future of motoring.