It was a wild, weird third quarter for special-purpose-acquisition companies in the electric-vehicle space. Terrified shareholders watched aghast as Nikola (NASDAQ:NKLA) stock crashed from $65 and change to less than $20. Since Spartan Energy Acquisition (NYSE:SPAQ) operates in the same industry, should the owners of SPAQ stock fear a similar fate?
Spartan Energy has definitely had its ups and downs. On the other hand, that’s perfectly normal for electric vehicle stocks, which tend to be volatile.
Besides, Spartan’s announcement of its merger with electric-vehicle company Fisker was made fairly recently. So SPAQ stock may continue to undergo price discovery for awhile until it settles into a range.
Nonetheless, I have to admit that the volatility of Nikola stock got me thinking about SPAQ stock. Moreover, a recent article by InvestorPlace contributor Lou Carlozo made me consider a deeper connection between Nikola and Fisker. So, will Spartan and Fisker follow Nikola into the abyss?
A Closer Look at SPAQ Stock
I already described the collapse of Nikola stock, so let’s now take a closer look at the price action of SPAQ stock. In September, the stock quickly reached its 52-week high of $21.60, only to fall back to $13.
Long-term shareholders might feel a sense of deja vu. That’s because SPAQ stock moved between almost the exact same price points during the summer. Maybe, then, SPAQ is starting to form a wide price range.
In other words, while SPAQ stock is certainly gyrating, it’s not necessarily in free-fall mode like Nikola stock seems to be. With SPAQ, it’s more of a tug-of-war between the bulls and the bears than a bear raid.
Playing the Pre-Revenue Blues
Carlozo’s article points out that both Nikola and Fisker are pre-revenue companies. He describes them as “companies that make less profit than your kid’s lemonade stand.”
So, why would anyone invest in a company with no revenue? As Carlozo explains, “The bet across all corners of the EV sector is that these pre-revenue [companies] will ramp up to a point where they perfect manufacturing infrastructure and corner some section of the consumer and/or commercial market.”
There’s no denying that it’s risky to wager on Fisker because it’s a pre-revenue company. It requires a heaping dose of faith to buy the shares of an automaker whose flagship vehicle, the Fisker Ocean, won’t be delivered until 2022.
I can understand why the company’s lack of revenue would dissuade some prospective investors. Fisker does have this characteristic in common with Nikola, and only visionary investors should consider speculating on either one of these companies.
Same Market, But Different Problems
All of that being said, it’s not fair to think of Fisker as having the same problems as Nikola. When it comes to trouble, these two companies aren’t in the same league.
Sure, there may be concerns surrounding Fisker’s seemingly on-again, off-again partnership with Volkswagen (OTCMKTS:VWAGY). But that’s nothing compared to the roller-coaster ride that Nikola’s shareholders have had to endure.
By now, there’s a good chance that you’re heard about the fraud allegations against Nikola specified in the well-publicized report issued by Hindenburg Research.
In the wake of Hindenburg’s scathing report, Nikola founder and Chairman, Trevor Milton, ended up stepping down, much to the chagrin of the company’s shareholders. Thus, Fisker is speculative, but it’s not scandal-ridden to the extent that Nikola is.
The Bottom Line
It’s tempting to lump Fisker into the same category as Nikola due to the two companies’ similarities.
However, SPAQ stock isn’t as risky as Nikola stock is. Without the magnitude of Nikola’s problems, Fisker isn’t likely to decline into the abyss anytime soon.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.