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‘Interesting’ implies both those to buy and those to avoid, and these SPAC EVs fit the bill
Electric vehicle SPACs have been one of the hottest topics in finance, investing and the stock markets during 2020. SPAC itself is an acronym that means Special Purpose Acquisition Company. It is a type of funding vehicle which has become very prominent in the past few years and specifically for bringing EVs to market in 2020.
SPACs are companies formed for the sole purpose of raising capital through an initial public offering to purchase an existing company. Traditional IPOs require more regulatory oversight and scrutiny making SPACs preferable in some cases.
In 2020 many EV companies have partnered with SPACs in order to go public. Whether these ultimately become profitable or not, they are certainly interesting.
Here are seven worth reading about, many of which I believe have the potential to make investors serious returns.
- Nikola (NASDAQ:NKLA)
- Forum Merger III (NASDAQ:FIII)
- CIIG Merger (NASDAQ:CIIC)
- Canoo Inc. (NASDAQ:GOEV)
- Switchback Energy Acquisition (NYSE:SBE)
- XL Fleet (NYSE:XL)
- Lordstown Motors (NASDAQ:RIDE)
Electric Vehicle SPACs: Nikola (NKLA)
Source: Stephanie L Sanchez / Shutterstock.com
Nikola has to be high on the list of most interesting electric vehicle SPACs. Scratch that. It really has to be high on the list of interesting stocks, period. Interesting in the sense that watching a car crash or any other disaster is interesting.
NKLA stock should serve as a cautionary tale to investors whose optimism in all things EV and SPAC peaked in 2020. For those who don’t know, Nikola has become an embattled company due to suspect claims about its technology, and ultimately its business model.
In mid-September things, really began to unravel for Nikola following a report from short-seller Hindenburg Research claiming Nikola had essentially committed fraud. Hindenburg’s accusations listed many material lies made by Nikola CEO Trevor Milton.
The surface of the saga can only be scratched with the few paragraphs that I have written here. This one is truly an interesting tale of business gone sour. The company was lauded as a rival to Tesla (NASDAQ:TSLA), rose seven-fold from $10 per share to more than $70 following its IPO, and plummeted to below $14 within a few quarters.
Forum Merger III (FIII)
Source: Electric Last Mile Solutions media
Forum Merger III announced on Dec. 11. that it will merge with Electric Last Mile which will use the proceeds from the SPAC to bring an electric last-mile delivery vehicle to market. This niche is currently dominated by Workhorse (NASDAQ:WKHS) which is connected to SPAC EV Lordstown Motors (see below), but not directly a SPAC EV itself.
Electric Last Mile Solutions has a current pro forma equity value of $1.4 billion on the news of the impending merger. The merger itself will take place sometime in Q1 2021. At that time, ticker ELMS stock will effectively replace FIII stock trading on the Nasdaq.
The company plans to use $379 million of the SPAC funding to launch its Urban Delivery van in the U.S. in Q3 2021.
I believe this is interesting because the timing is opportune for investors. This SPAC has found a firm to partner with in Electric Last Mile Solutions and it is still early so there could be a lot of growth on market sentiment alone. I also find this interesting because the delivery and logistics sector of EVs is going to get hotter as the regular EV market begins to saturate.
CIIG Merger (CIIC)
Source: Arrival media
Arrival gives the current combined company a value of $5.4 billion based on projected 2024 revenues of $14.1 billion. The company also states that its enterprise value of $5.4 billion represents 1.4% of the total addressable market. That puts the total market value at $385 billion roughly. It is no wonder companies like Workhorse, Electric Last Mile Solutions and Arrival are clamoring to bring solutions to the market.
The listing of the merged company will occur sometime in Q1 of 2021 when CIIC stock will trade on the Nasdaq under the ARVL stock ticker. The company will produce a bus and a cargo van when operations come online in Q2 2021 with production slated to begin in Q4 2021.
Source: Canoo media
Canoo is an EV company which has recently gone public now trading under the GOEV stock ticker. It took on its new ticker on Dec. 22 and to me, what makes this firm interesting is its movement since then.
GOEV stock rose quicker than many other EV SPACs have, and that’s saying something because this particular area of the markets rises very fast. But I can’t help but think this one is trending downward. Frankly, it seems to have followed the pattern that I’ve noticed with SPACs which is that they rise very fastup their IPO date, and then cool.
The company does have an interesting lineup of products which includes its seven-seat Canoo van with a 250-mile range reminiscent of a VW bus, a multi-purpose delivery vehicle (MPDV), and a B2B EV platform.
But the company’s first vehicle (Canoo van) is expected to launch in 2022, with the MPDV thereafter. They’re both built off of a similar platform which seems to be Canoo’s current opportunity in the interim. Most of what will drive Canoo now that the merger has occurred and the SPAC funding has been received is sales.
The company needs to make deals. The best way to do that is to aggressively sell its B2B platform to other manufacturers in order to bring in some top line revenue prior to those 2022 launches. Sure, the company has money to operate as a consequence of the SPAC, but that won’t interest investors between now and 2022.
Switchback Energy Acquisition (SBE)
Source: Michael Vi / Shutterstock.com
Investors have watched SPACs seek EV partners in passenger vehicles, delivery vehicles, and Class 8 trucks among others. But SPACs aren’t solely seeking to partner with vehicle makers in the EV space. Some are taking the picks and shovels approach to business. Switchback Energy Acquisition is one such example.
Tesla’s supercharger network was famously opened for use by any EV company that wanted to develop a vehicle compatible therewith. Tesla opened its patents but there was fine print and no established automakers are taking advantage of the offer.
According to an attorney from Duane Morris LLP, the reasons are simple:
“Note that a company using Tesla’s patented technology is not only giving up the ability to bring an action against Tesla for patent infringement, but any form of intellectual property infringement. This includes trademark and copyright infringement, as well as trade secret misappropriation. Thus, for example, if Tesla copied a company’s source code line-for-line, that company would be required to forfeit the protection provided by the Pledge in order to enforce its rights.”
This makes Chargepoint even more interesting and opens a door of opportunity for the firm to really take advantage. SBE stock has risen quickly but there’s likely to be a good deal of growth left in the equity prior to the merger. The company should rise in line with the growth in U.S. and European EV markets.
XL Fleet Corp. (XL)
XL Fleet went public on Dec. 10. The company doesn’t produce EVs. Rather, it retrofits EV solutions to regular work trucks making them hybrid. This is very similar to what HyliionHoldings (NYSE:HYLN) does.
The company refers to the process as upfitting, but it essentially hybridizes a normal internal combustion vehicle. The company claims that the process of upfitting hybrid componentry to ice vehicles does not void warranties on the vehicles.
Fleet operators for whom this product will make sense are going to need proof that the technology is going to save them money. That is going to be the challenge for both XL Fleet and Hyliion.
XL has three case studies listed in its investor presentation (pg. 16). Hyliion only recently began initial partnering to build such cases. Where Hyliion has eight vehicles being tested, XL Fleet already has case studies with results for 687 vehicles.
XL Fleet is projecting revenues which surpass $1 billion sometime in 2024, and profitability this year. My question for these companies is not if there is a market for their technology. The risk of warranties being voided by retrofitting parts to the drive train seemed to be a significant stumbling block in my thinking. Given that XL Fleet has a wealth of case studies proving that it is possible, it looks feasible.
XL stock should serve as an equity filling the gap between now and full-EV fleet vehicles. That should remain interesting for investors if it continues to sell those solutions.
Lordstown Motors (RIDE)
Source: SevenMaps / ShutterStock.com
Lordstown Motors represents the next logical evolutionary step beyond XL Fleet. Its Endurance pickup truck is being touted as the world’s first all-electric commercial vehicle. The truck is aimed at fleet operators as the U.S. moves toward greener fleets and vehicles at large.
Part of President-elect Joe Biden’s energy strategy is to prioritize electric vehicles. Biden has already stated that he’ll prioritize electrification of government fleets which should clearly benefit Lordstown.
Lordstown is on track to begin deliveries of its Endurance in September 2021. If Biden’s administration can in fact create the right conditions including subsidies for EV trucks, Lordstown may well thrive.
I remain on the fence regarding RIDE stock because in my eyes the $52,000 price tag attached to the Endurance may well prove prohibitive despite pre-orders. Nevertheless it is an interesting company.