Even in a sizzling market, there may not be a hotter group of stocks than electric vehicle SPAC stocks. SPACs, or special purpose acquisition companies, became a preferred route to the public markets last year. A number of EV companies have taken advantage of the new trend.
More are on the way. And history shows that EV SPAC stocks often rally into and out of the merger close date, even if those rallies fundamentally don’t seem to make sense.
For investors betting on that pattern to continue, or looking for pre-merger electric vehicle SPACs to buy, here are four SPAC stocks to keep an eye on:
- Switchback Energy (NYSE:SBE)
- CIIG Merger (NASDAQ:CIIC)
- TPG Pace Beneficial Finance (NYSE:TPGY)
- Forum Merger III (NASDAQ:FIII)
Electric Vehicle SPAC Stocks: Switchback Energy (SBE)
Personally, I’m not sold on EV SPACs, or the sector as a whole. Switchback Energy stock highlights the promise, and peril, of the group.
Switchback is merging with charging station provider ChargePoint. And as I wrote last month, ChargePoint offers a truly attractive business. What’s attractive about ChargePoint (and thus SBE stock) is that the company is a play on electric vehicle growth — no matter who manufactures the vehicles.
Unlike Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO) or even Nikola and Canoo, investors don’t need to worry too much about picking winners in a still-nascent industry. As long as the industry is growing, charging station demand will rise, and so will ChargePoint revenue and profits. Indeed, the company has projected that it can hit $1 billion in revenue when electric vehicle penetration reaches just 3% of cars on the road.
The problem, as is the case with a number of electric vehicle SPACs, is valuation. Pro forma for the merger, the ChargePoint business is valued at roughly $10 billion, or about 10x that revenue level which remains several years off.
As I wrote last month, SBE stock certainly has a shot. But investors might do well to hope that a recent pullback continues.
CIIG Merger (CIIC)
CIIG Merger highlights another aspect of SPACs: the willingness to make big promises.
The traditional initial public offering process has stricter rules about disclosures and projections. Mergers aren’t subject to quite the same scrutiny. And so private companies, upon announcing mergers with SPACs, can provide aggressive forecasts, at least within reason.
Arrival, the U.K.-based van and bus manufacturer merging with CIIG Merger, certainly has taken advantage. In its merger presentation, Arrival estimated a whopping $14 billion in revenue by 2024.
In that context, a current pro forma market capitalization over $16 billion hardly seems onerous. Of course, Arrival may well be too optimistic. There’s a long way to go from essentially zero to $14 billion. If Arrival gets there, CIIC stock will prove to be far too cheap. If it doesn’t, the stock will look in retrospect like a major part of an EV bubble.
TPG Pace Beneficial Finance (TPGY)
TPG Pace Beneficial Finance certainly chose the right time to merge with an EV company. After its tie-up with European charging play EVBox was announced in December, TPGY stock more than doubled.
Given the rally in SBE stock, the optimism makes some sense. EVBox is the leader in Europe and is looking to leverage that experience by entering the North American market. Growth has been impressive, with the top line more than quadrupling between 2017 and 2019.
Again, valuation is a concern. Pro forma market capitalization is about $3.8 billion at the moment. That’s about 14x projected 2022 revenue of 225 million EUR. That likely makes TPGY stock a bit cheaper than SBE — but hardly cheap.
Forum Merger III (FIII)
FIII stock hasn’t seen quite the same pop as other electric vehicle SPACs. The stock trades at $14 despite announcing a merger with Electric Last Mile, which is developing electric delivery vans for the U.S. market.
It could be that investors fear competition. ELM is targeting the same market as the likes of Arrival, Workhorse Group (NASDAQ:WKHS), and many others. At least so far, FIII stock suggests investors see those rivals as more attractive.
But Electric Last Mile does have an interesting case itself. The platform is based off a successful EV van offering in China. A former Hummer plant in Indiana has been acquired and retrofitted for electric van production.
Meanwhile, the lower price does suggest that FIII stock has more upside if Electric Last Mile can be a winner in its market. Of course, that’s a big ‘if’, but that’s true of all the electric vehicle SPACs at this point.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.