The recently announced reverse merger between CIIG Merger Corp (NASDAQ:CIIC), a special purpose acquisition company (SPAC) and the privately held electric vehicle (EV) group Arrival has caught the interest of momentum investors. Since mid-November, CIIC stock has gone up by well over 200%.
Arrival, which was founded in 2015 in the U.K., focuses on commercial EVs, namely van and bus models. By the middle of the decade, the company plans to have four products. Now, the proposed deal with CIIC stock will give Arrival an enterprise value of $5.4 billion.
This year has also witnessed significant moves upward in share prices of SPACs as well as electric vehicle companies. Tesla (NASDAQ:TSLA), a darling among EV investors, has returned a staggering 655% year-to-date. As a result, market participants have been looking for the next Tesla, which joined the S&P 500 index on Dec. 21.
Meanwhile, several EV firms have gone public via reverse mergers with SPACs. In addition to Nikola (NASDAQ:NKLA), other recent examples include Fisker (NYSE:FSR), Lordstown Motors (NASDAQ:RIDE), and Luminar Technologies (NASDAQ:LAZR). Put another way, CIIC stock is already joining a busy EV SPAC space.
Arrival Is Carving Out A Niche Commercial EVs
When Wall Street discusses EVs, passenger cars typically get the most attention. However, public transport and freight logistics are also putting the limelight on the commercial EV space.
According to metrics from Virta:
“In freight transportation, on the other hand, light-commercial EVs (LCEs) reached 380,000 units in 2019, which is great news for the future of commercial trucking. The global stock of electric buses in 2018 was 460,000, almost 100,000 vehicles more than in 2017… In European Union countries, a new Clean Vehicles Directive also provides a public procurement of electric buses.”
After successful completion of the Arrival-CIIC merger, expected in the first quarter, the new company will list on the Nasdaq stock exchange under the ticker ARVL. The North American headquarters of Arrival has already been established in Charlotte, North Carolina, where it is expected to employ 150 people.
Most SPACs like CIIC stock begin trading around $10. Following the announcement of an upcoming deal, shares usually jump. A similar pattern has happened with CIIC stock. On Dec. 7, it saw a high of $37.18, only to decline toward $16 in a hurry. Now, CIIC shares are over $31.
However, not everyone is convinced that the SPAC boom in the EV space is good for the vehicle industry. For instance, Mate Rimac of privately held electric hypercar maker Rimac has recently cited,
“You can get so much money now for companies that do not have a product,” said Mate Rimac of privately held electric hypercar maker Rimac. “Personally I am scared a little bit. When we go public, I want to show the numbers, to go public on reality, and not on hype. I hope that these SPACs will be successful. A lot of them won’t.”
It is too soon to say if CIIC stock will create value for shareholders. However, if 2020 is any guide, the shares are likely to be choppy in the new year, too.
The Bottom Line on CIIC Stock
This year has shown that SPAC investments can be profitable for those who are also able ride the volatility of these speculative investments. The Street is not shy to highlight the drawbacks of SPAC investments, like CIIC stock.
Similarly, in a recent investor bulletin, the U.S. Securities and Exchange Commission (SEC) has alerted investors about the details of SPAC investments. “To learn more about a sponsor’s interests in a SPAC, you should review the “Principal Stockholders” and “Certain Relationships and Related Party Transactions” sections of a SPAC’s IPO prospectus,” it says in the alert.
I’d also urge investors to do due diligence before committing capital into a SPAC, like CIIC stock. For example, InvestorPlace.com contributor Mark R. Hake suggests that CIIC stock is already trading 2x 2024 sales, making it nearly fully valued.
I concur with the important points he has highlighted and find the current price to be on the rich side. However, long-term investors with at least two- to three-year horizon could look to buy the dips, especially if CIIC stock nears $27.50.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.
