Investors Should Employ a Wait-and-See Approach With Spartan Energy

Its been a solid year for Spartan Energy Acquisition Corporation (NYSE:SPAQ) so far, with SPAQ stock gaining 40% this year.

an electric vehicle at a charging station

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More importantly, Spartan will merge with Fisker Inc., a new entrant in the electric-vehicle sector, later this year. Fisker looks ready to take the EV market by storm with the robustness of its software and the relative affordability of its vehicles. However, with at least two years to go before the release of the company’s flagship Ocean SUV, it’s tough to recommend buying SPAQ stock at this point.

Spartan Energy is among the special purpose acquisition companies, or SPACs, which have done exceedingly well in the stock market this year. The problem is that these stocks are jumping purely based on the potential of the companies with which they have agreed to merge.

Most of these companies are speculative at best. Fisker is a speculative investment at this point, and it needs to prove itself before investors should think about buying SPAQ stock.

The Ocean Looks Interesting

Promising new details have emerged about the Ocean, Fisker’s first EV, since my previous article on Spartan. The Ocean will have a wide variety of range and horsepower options. Its quickest models, which are likely to cost close to $70,000, will get from zero mph to 60 mph in around three seconds.

That low acceleration time put it in the esteemed company of Ford’s (NYSE:F) GT, Tesla’s (NASDAQ:TSLA) Model 3, and the McLaren 675LT. However, not everybody needs such fast acceleration, and therefore, the nearly $70,000 price tag is aggressive.

Fisker is yet to announce the platform underpinning the Ocean, but it is likely to be provided by another company. Henrik Fisker believes the  Ocean’s differentiation will invariably be linked to design and software.

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?”

Additionally, the company is focusing on sustainability in an effort to drive demand in the future. The Ocean has a vegan interior that utilizes recycled materials, including polyester and rubber, with solar panels adorning its roof.

Perhaps one of the most attractive aspects of the vehicle is the ability to lease it relatively affordably. The company announced a flexible lease program last year, including a $2,999 activation fee and $379 per month thereafter. Leasers can drive the vehicle for 30,000 miles per year.

Those who take the offer will also receive complete service and maintenance at no additional fee. Tesla’s Model 3 requires a $1,214 down payment and then $519 per month for 10,000 miles per year

The SPAC Bubble

One would expect Wall Street to closely examine companies’  track record before listing their stocks. That has been the case for the longest time, but things are changing of late when it comes to SPACs. The companies that have merged with SPACs are being allowed to publish detailed sales projections instead of actual sales. Consequently, these companies can go public without having generated even a dollar in revenue. So far this year, SPACs in the North American region have raised over $38 billion.

The problem with such companies is that, instead of selling their performance, they’re selling their vision. As a result, they are speculative and potentially dangerous.

For its part,  Fisker expects to generate annual revenue of $10.6 billion and $1 billion of free cash flow by 2024.

However, the production of its Ocean EV will begin in late 2022. Fisker Automotive, Henrik Fisker’s first venture, fell flat, filing for bankruptcy back 2013 amidst safety recalls.  According to a recent filing,  he and the CFO, his wife, will have a combined 90% of the voting rights of the new company. That could potentially raise concerns about the governance of the company in the future.

A Final Word on SPAQ Stock

Fisker has talked a big game, but it needs to prove itself in the next few months before investors should get serious about it. Spartan Energy needs to follow through on the Fisker deal, and then we can specifically look at Fisker and its prospects.

And with Fisker’s Ocean not due to be released until 2022,  it’s going to be tough to convince investors to buy SPAC stock in the near-term.

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

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