In an electric vehicle sector that looks overheated, Spartan Energy Acquisition (NYSE:SPAQ) has seen surprising trading. SPAQ stock roared after announcing a merger with EV manufacturer Fisker but has seen a sharp pullback since.
Indeed, SPAQ traded as high as $21.60 not long after announcing the merger. It’s now below $13. By the standards of recent SPACs (special purpose acquisition companies), less than 30% upside from the $10 initial price for SPAQ stock qualifies as a disappointment.
Indeed, fellow EV play Nikola (NASDAQ:NKLA), which similarly went public via the SPAC route, has nearly quadrupled from its pre-merger levels.
The pullback, and lack of upside, are one reason why SPAQ stock looks intriguing. But, as always, there are risks here as well, including one significant near-term concern. Investors need to keep those risks in mind when considering what looks like one of the more intriguing plays in the EV sector.
Electric Vehicle Adoption
The short version of the case for SPAQ stock is that even a niche EV manufacturer should be able to create shareholder value. Electric vehicles still are in their infancy. Adoption will only rise over time thanks to government subsidies, increasing awareness of climate change and other environmental factors, and better vehicles.
Fisker has a chance to make a truly wonderful vehicle. The company is named after Henrik Fisker, who has designed vehicles like the BMW (OTCMKTS:BMWYY) Z8 and several Aston Martin (OTCMKTS:AMGDF) models, along with a motorcycle and even a superyacht.
Admittedly, Fisker’s first effort failed. Fisker Automotive produced the plug-in Karma but wound up selling its assets to a Chinese company for a pittance. The bankruptcy of A123 Systems, Fisker’s battery supplier, was a key factor, but that aside Fisker never really gained market acceptance.
Of course, this is a very different market than it was in 2011, when the Fisker Karma first was delivered. Tesla (NASDAQ:TSLA) has moved EVs into the mainstream with its Model 3. Ford (NYSE:F) and General Motors (NYSE:GM) are moving aggressively in the space as well.
More potential customers are going to give more thought to electric options than they did during Fisker’s first go-round. And while Tesla clearly has the early lead in the sector, globally EVs have less than 3% of the market.
That share will grow for years, and likely decades, to come. That growth in turn will create plenty of room for multiple winners. Fisker can be one of those winners, and that should be more than enough to drive upside from a current pro forma market capitalization under $4 billion.
SPAQ Stock Lags
What’s interesting about SPAQ stock right now is that the market seems to be pricing that market growth into other EV plays, but (until a decent rally on Monday) had sold off SPAQ.
Certainly, there’s been some selling of late in smaller EV stocks. But TSLA has busted through the $2,000 mark, and now has a market capitalization of $365 billion. NKLA, as noted, is up almost 300% from its $10 merger price, and has a market capitalization over $15 billion.
Nio (NYSE:NIO) is an interesting parallel to SPAQ, given that both companies a) lean toward high-end SUVs and b) are outsourcing manufacturing. Nio is worth $17 billion after climbing roughly 600% from early April lows.
SPAQ stock simply hasn’t gotten the bump that most other EV plays have. As noted, it hasn’t even received the boost that most SPAC mergers have. It would seem like, at some point, that has a high likelihood of changing.
The Case for Patience
The question, however, is when that change might arrive. A key problem for SPAQ stock right now is the lack of a catalyst.
There is one potential catalyst out there. As noted, Fisker plans to outsource production. Its original plan was to partner with Volkswagen (OTCMKTS:VWAGY) to use its electric vehicle platform. But those talks have broken down.
Success with Volkswagen, or another partner, could give SPAQ stock a much-needed dose of optimism. But once that event occurs, investors are going to have to be patient.
After all, the first product, the Fisker Ocean SUV, isn’t scheduled to launch until 2022. In the meantime, SPAQ stock might ebb and flow with the sector as a whole, rather than trading on its own merits.
That near- to mid-term future creates some concern, given potentially stretched valuations in the space. Perhaps SPAQ stock outperforms given its recent pullback, but it’s equally possible that it gets dragged down further if EV optimism cools off.
As a result, I’m not sure Spartan Energy stock is a buy right now. At the least, it will require patience — and perhaps a bit of trading. But over time, I believe SPAQ has a solid chance of providing solid, and potentially exceptional, returns.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.