Shares of special purpose acquisition company (SPAC) Gores Guggenheim (NASDAQ:GGPI) got a boost last month thanks to renewed appetite for electric vehicle plays, with GGPI stock surging more than 50% in the first half of November.
The company will become an EV pure play in the first half of 2022 when it merges Polestar, an electric vehicle startup.
Investors are salivating at the new prospect given the comparisons with Lucid Motors (NASDAQ:LCID). Plus, Polestar differs from some other up-and-comers in the space in that it has already begun production and expects to make sizeable revenues this year.
GGPI stock hit a high of $16.41 on Nov. 15, when the Polestar merger was officially announced, before reversing lower. As I write, shares are trading more than 30% below that high, around $11.30. Some investors might be wondering whether this presents a good buying opportunity.
I think a better option would be to wait and try to purchase shares below their offering price of $10. Given concerns about inflation, the omicron variant and Federal Reserve tightening monetary policy, you just may get a chance.
What Makes Polestar Different?
We’ve witnessed a whole host of EV companies going public via the SPAC route in the past year. It would be tough for investors to put one over the other at a glance. The profile is virtually identical; pre-revenue firms that could potentially make a big splash in the EV realm in the years to come. However, Polestar is breaking that trend with multiple anomalies in its story.
Revenue is perhaps the biggest aspect to consider here. Polestar has already delivered 10,000 cars in 2020 and has delivered three times as much three quarters into 2021. Manufacturing is another edge with the company. It has fostered key relationships with China’s Geely Auto (OTCMKTS:GELYF) and Geely’s Volvo Cars subsidiary.
However, it won’t be aping Volvo’s design. The EV manufacturer revealed that it would be developing a new space frame chassis and other elements to differentiate itself from its manufacturing partner.
Moreover, it plans to develop a lightweight product architecture that will be effective in providing Level III driver assistance. Furthermore, Polestar’s manufacturing reach will help it rapidly enter new markets. Over the long-term, it expects to be in business in over 30 markets.
By 2025, it feels that its revenues could reach close to $17.8 billion and a healthy $1.6 billion operational income. However, it is important to take SPAC projections with a grain of salt, as many investors told you from their experiences last year. Nevertheless, having an existing revenue base is significantly better than having zero sales.
Risks on GGPI Stock
Though Polestar looks highly promising at this stage, there are a few risks that you need to be wary of before betting on the company. First up, its partnership with Geely and Volvo is a major advantage, which gives it the edge over its competition. However, there are plenty of trade-offs when a company is dependent on third parties for engineering, design, manufacturing, and other aspects of their business.
Therefore, investors need to consider the long-term ability and capabilities of Volvo and Geely along with Polestar. Moreover, with such interdependence among the companies, investors will have less clarity into the financials of Geely and Volvo.
Additionally, any challenges with both companies have a cascading effect on Polestar. Moreover, Polestar doesn’t seem to have much control over its costs due to the nature of its agreements. Another element that may concern investors is Polestar’s future valuation. Though it’s currently priced favorable, the EV market, in general, is overheated.
The Bottom Line
Polestar has a fascinating strategic proposition of leveraging the established manufacturing competencies of Geely and Volvo in rapidly scaling up. In the short run, there could be a sharp increase in its share price and investor interest through its growth stage.
However, it may encounter a few risks regarding the level of competition and dependence on external providers in the long run. Hence, GGPI stock holds a lot of promise, but there could be better opportunities to purchase it close to its SPAC offering price.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.