I do not believe that the Spartan Energy Acquisition Corp. (NYSE:SPAQ) stock is a buy at this point. Spartan Energy is slated to eventually become the stock of Fisker Inc., an electric vehicle maker founded by auto designer Henrik Fisker.
Given Fisker’s lack of apparent differentiation from its competitors, the fact that Fisker’s first EV company went bankrupt, and the distinct possibility that a proposed deal between Fisker and Volkswagen (OTC:VLKAF) will fall through, I recommend avoiding SPAQ stock at this point.
Lack of Differentiation
Fisker does not seem to have any meaningful competitive advantages over the many companies entering the EV race. Like multiple other companies in the space, including Tesla (NASDAQ:TSLA), Hyundai (OTC:HYMTF), General Motors (NYSE:GM),and Volkswagen, Fisker is launching a small electric SUV.
Fisker’s SUV, called the Ocean, is expected to cost around $37,000 before rebates, versus nearly $50,000 for Tesla’s Model X. But I don’t think that price differential will be enough to give Fisker much of an edge.
Similarly, although Henrik Fisker’s extensive background in auto designing is positive for SPAQ stock, I’m not sure how much of an edge it will give his company over other companies that are also likely using very successful auto designers.
Finally, according to a Seeking Alpha columnist, the Ocean is slated to be “the world’s most sustainable vehicle, including extensive use of environmentally friendly and recycled materials.” That’s an intriguing marketing idea, but I’m not sure if it will be sufficient to attract a high number of consumers away from more established automakers, including Tesla and General Motors. Most consumers are likely to feel that they are doing enough to help the environment by buying an all-electric vehicle.
The Volkswagen Deal Could Easily Fall Through
In November 2017, Volkswagen and Fisker signed a memorandum of understanding for the start-up to use Volkswagen’s “EV platform,” and the two companies inked a partnership deal in December 2018. Nonetheless, almost three years after the MOU was completed, Volkswagen and Fisker have not yet finalized the deal.
The agreement was supposed to be completed in July, and Fisker says the two automakers are to resume talks again sometime this month. But I think that Volkswagen may have gotten cold feet about helping a start-up, especially because the German firm is also planning to launch a small electric SUV.
If the agreement does fall through, likely delaying the launch of Fisker’s Ocean for a long time, SPAQ stock could sink tremendously.
Henrik Fisker’s Previous Venture Went Bankrupt
Fisker Automotive, an auto maker launched by Henrik Fisker in 2007, went bankrupt in 2013. Although that company was hurt by Hurricane Sandy, it was also plagued by “production delays … and problems with a key battery supplier.”
It’s true that demand for EVs is much stronger now than it was then, and it’s probably much easier to obtain supplies for EVs in 2020 than it was in 2013. Further, this time Fisker is looking to outsource production. But the fact remains that Tesla succeeded where Fisker failed, and effectively buying the shares of a company founded by someone whose previous venture went belly-up doesn’t sound like a great idea.
The Bottom Line on SPAQ Stock
The shares are currently trading at a market capitalization of $1 billion. As of June, Fisker had reportedly obtained 5,500 reservations. But since the orders only require a refundable deposit of $250, I’m not sure how much they really tell us about demand for the Ocean.
Given Fisker’s lack of differentiation, the risk of the Volkswagen deal falling through, and the fate of Henrik Fisker’s previous company, I recommend that investors sell SPAQ stock at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.