Spartan Energy May Be the Right Stock at the Wrong Time

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The electric vehicle (EV) sector is beginning to resemble the marijuana market of 2018. Any company that has a remote relation to EVs is moving higher. And that includes the latest SPAC (special purpose acquisition company) deal. This one involves Spartan Energy Acquisition (NYSE:SPAQ). The company, which will be called Fisker Inc. will go public when the merger is complete. And there’s growing opinion that SPAQ stock looks like a great investment.

I’m not so sure. Since popping nearly 15% on Sept. 14, SPAQ stock has dropped nearly 20%. SPAQ stock is likely to go higher post-merger. But if you’re going to invest in the stock, you should do so with your eyes wide open.

There appears to be a bit of EV fatigue setting in. Some of this fatigue may actually be caution. And it’s not completely undeserved. The sector got a wake-up call with the fraud allegations that are engulfing Nikola (NASDAQ:NKLA). However, that only explains so much. I think investors are taking into account the lesson from the marijuana craze of 2018.

And when they do, I believe that investors are starting to understand that, for a company like Fisker, profit, let alone revenue, is still a ways off.

The Bullish Case for SPAQ Stock

Excitement about SPAQ stock centers around the company’s founder, Henrik Fisker. And there’s reason for that. Fisker is the designer of iconic luxury automobiles that include the Aston Martin V8 Vantage. And Fisker is bringing that reputation to the manufacturer with the Fisker Ocean.

Fisker pledges that this luxury electric SUV this will be the “world’s most sustainable vehicle.” The Ocean’s design will include recycled materials from the ocean. Another proposed feature is a full-length solar roof option that the company claims may provide up to 1,000 additional free miles each year.

However, the Ocean is not launching until the fourth quarter of 2022. And that’s where the bullish case becomes a bit harder to follow.

Fisker Is Taking a Different Approach

It seems that many EV companies are trying to find a distinct niche. Fisker is intent on outsourcing the manufacturing of the Ocean. The company recently signed an agreement with Magna International (NYSE:MGA) to cooperate on manufacturing in Europe. The idea is that it will leave Fisker free to concentrate on the design, technology, and software.

On the surface, this seems like a sound strategy. Muslim Farooque wrote about Fisker’s philosophy:

We think of the future of automotive the way Apple thought of phones. Tim Cook isn’t walking the factory floor at Foxconn,” Fisker said.  “We’re going to outsource the manufacturing. {Large automakers} haven’t perfected the electric car, but they’ve perfected manufacturing, so why not take advantage of that?”

I don’t take particular exception to that.  However, the Ocean will be unlike any other electric vehicle. That makes it a manufacturing challenge. And it remains to be seen how much of Fisker’s vision will make it into the Ocean’s final design.

2022 Is a Long Way Away

I started this article by drawing a loose parallel between the current EV bubble and the marijuana bubble. The basic (and overly simple) dilemma for cannabis is too much supply and not enough demand. Electric vehicles may face a similar dilemma. The economy has some impressive headline numbers, but is still weak under the surface.

No matter which party holds the power, and to what extent they hold it, the economy will continue to be weak until the economy is fully open. That can’t happen until there is a widely available vaccine or proven therapeutic treatments. And all of that means that you better assume the pre-orders for the Ocean are written in pencil.

Which means if you’re interested in SPAQ stock, you need to hope for a sustainable economy that will drive meaningful demand for the company’s sustainable vehicle.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.

MarketWatch says hedge fund legend Louis Navellier is the “adviser who recommended Google before anyone else.”

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