It’s been a red-hot summer for Spartan Energy Acquisition (NYSE:SPAQ) as the shares have gone from $10 to a high of nearly $17. This, despite the fact that the stock price has trended down to about $14.
Spartan Energy is a Special Purpose Acquisition Company, or SPAC. This involves a shell company that raises money in the public markets via a traditional IPO (Initial Public Offering) with the ultimate goal of merging into a operating company.
SPACs have certainly become quite popular on Wall Street. One reason is the success of Virgin Galactic (NYSE:SPCE). But the novel coronavirus has been another catalyst. Keep in mind that SPACs have proven to be easier for companies to go public.
The Merger
Spartan Energy is majority-owned by Apollo Global Management (NYSE:APO), which is a top private equity firm. It has more than $400 billion in assets under management.
As for Spartan Energy, Apollo was able to arrange a merger with Fisker, which is focused on developing electronic vehicles (EVs). The initial valuation of the deal was set at $2.9 billion and the transaction is expected to be closed in the fourth quarter.
Fisker will receive $1 billion in cash, which should be enough for the next couple years. Note that the company plans to begin production of the Fisker Ocean vehicle by the latter part of 2022.
Background on Fisker
Henrik Fisker has a storied career in the auto industry. He has designed luxury vehicles like the Aston Martin V8 Vantage, BMW Z8, Aston Martin DB9, and the VLF Destino V8.
In 2007, he would go on to launch his own auto startup, called Fisker Automotive. It received lots of media buzz and substantial amounts of capital was raised from tier-one VCs like Kleiner Perkins, Caufield & Byers, and even celebrities such as Leonardo DiCaprio. Unfortunately, Fisker Automotive eventually collapsed into bankruptcy.
Yet it was not really over. Consider that Fisker was able to retain his brand and try again.
This time around, he is focused on sleek design and eco-friendly-ness (the components will be made with recycled parts). There will also be a flexible leasing arrangement and the Fisker Ocean is expected to retail for about $37,500. In other words, the company is making a play for the mainstream market.
For the most part, the vehicle’s creation, assembly and production will be outsourced. This should help reduce the need for financing and accelerate the time-to-market.
In terms of interest, there are encouraging signs. Fisker has announced that there have been more than 7,000 reservations for the Ocean.
Bottom Line on SPAQ Stock
No doubt, the growth of the EV market is expected to be robust. According to a study from Deloitte, the number of shipments is forecasted to go from four million in 2020 to 12 million by 2025. So yes, there is room for several players in the EV market and there are certainly opportunities for cutting-edge operators like Fisker.
There are definitely notable risks to consider. First of all, the outsourcing model has proven challenging. Fisker has been in negotiations with Volkswagen (OTCMKTS:VLKAF) since 2017 and there still has not been a deal. If this continues to drag or fall apart, this could make it difficult for Fisker to meet its timetable.
Next, the EV market has been rocked by the allegations of fraud from Nikola (NASDAQ:NKLA), which recently went public in a SPAC. Granted, this may prove to be a one-off. Then again, more bad news could weigh on the SPAC market – at least in the short run.
However, for those investors with a willingness to take on higher risks investments, Fisker is intriguing. It does have differentiation with its environmental focus, outsourcing model and low-cost leasing. So all in all, Fisker could be a way to play the secular trend of the EV market.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
