Tuscan Holdings (NASDAQ:THCB) is a special purpose acquisition company (SPAC). Since late November, when the share price was around $10, THCB stock has been on fire. On Dec. 28, it hit a record-high of $20.93. Now, it is hovering around $17. In less than two months, that is a return of about 70%.
This price increase corresponds with the news that Tuscan Holdings will merge with the privately held electric-vehicle (EV) battery maker Microvast. InvestorPlace readers are likely to be familiar with many of the SPACs that were darlings of the Street in 2020. Such blank-check companies became listed on a stock exchange to buy a private firm to take it public. These reverse-mergers are an alternative to the traditional initial public offering (IPO) route. Metrics from SPAC Research show that in 2020, there were 248 SPAC IPOs, raising more than $83 billion.
Today, we will look at what investors can expect from THCB stock in early 2021. If you are not yet a shareholder, you may want to keep the company on your radar. Those market participants who can spare risk capital into this new venture could consider buying THCB stock around $15 or below.
Microvast Manufactures Batteries
THCB stock’s prospective partner Microvast was founded in 2006. It currently has offices in Texas and China as well as a manufacturing center in Huzhou, China. Notably, its battery systems were used in the 2018 Olympic Games in South Korea.
In its press release announcing the merger, Tuscan Holdings cited, “Microvast has a compelling financial profile, with significant historical revenues as well as projected growth and profitability. With its battery technology installed in over 28,000 vehicles worldwide, an impressive, growing list of global OEM customers, and a strategic partnership with Fiat Power Train Industrial, Microvast is a proven technology leader driving the mass adoption of EVs.”
These forward-looking words were enough to get investors in THCB stock to hit the “buy” button. But there was another piece of positive news. In November 2020, the “The United States Advanced Battery Consortium LLC (USABC), a subsidiary of the United States Council for Automotive Research LLC (USCAR), and a collaborative organization of FCA US LLC, Ford Motor Company and General Motors … announced the award of a $1.04 million technology assessment program contract to Microvast.”
The battery maker lists China-based CITIC (NYSE:CCAC) and CDH as its investors. Although the details of the deal between THCB stock and Microvast are not fully known, the new venture’s valuation should be around $2 billion.
Electric-Vehicle SPACs Were Hot in 2020
Many investors bet on EVs, especially within the SPAC space in 2020. However, prices of shares that go public through a merger with a SPAC are typically quite volatile. Recent research by Michael Klausner of Stanford Law School and Michael Ohlrogge of New York University School of Law highlights that, “We find that costs built into the SPAC structure are subtle, opaque, and far higher than has been previously recognized. Although SPACs raise $10 per share from investors in their IPOs, by the time the median SPAC merges with a target, it holds just $6.67 in cash for each outstanding share.”
They conclude, “for a large majority of SPACs, post-merger share prices fall, and second, that these price drops are highly correlated with the extent of dilution, or cash shortfall, in a SPAC. This implies that SPAC investors are bearing the cost of the dilution built into the SPAC structure, and in effect subsidizing the companies they bring public.”
Last month, the U.S. Securities and Exchange Commission (SEC) also released guidance warning retail investors of the potential dangers of investing in SPACs. Therefore, THCB stock investors would need to do their due diligence to analyze the suitability of the shares for their long-term portfolios.
Furthermore, Microvast is not without competition in the EV and battery space. For example, another battery group, QuantumScape (NYSE:QS), also went public via merging with the SPAC Kensington Capital. In early November, QS shares were around $12. By Dec. 12, shares hit a record high of $132.72. Now they hover around $65. Put another way, the proverbial $1,000 invested in QS in November would now be worth over $6,500. Such price moves are both enticing and stomach-churning.
The Bottom Line on THCB Stock
Investors’ interest in electric vehicles and batteries is likely to continue in the new year. Market participants also have a vast appetite for new offerings. However, it is important to remember that Microvast is still a private firm.
Until we have more details on the merger as well as the relevant SEC filings, THCB stock remains a speculative play. If you can allocate risk capital to the shares, you could consider buying THCB stock around $15 or even below.
Are you tempted by the “SPAC-tacular” run-up in prices but nervous about committing capital to THCB stock at this point? Then you could also consider an exchange-traded fund (ETF) that invests in the SPAC space. Examples include the Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK) and the SPAC and New Issue ETF (NYSEARCA:SPCX).
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.
