If you were to take the common adage of electric vehicles to heart — that they’re the future of transportation — then Gores Guggenheim (NASDAQ:GGPI) stock may make a lot of sense to you.
A special purpose acquisition company set to merge with Polestar, one of the generally credible competitors in the EV space, the upstart has plenty going for it. So, is GGPI stock a buy?
Frankly, a lot of folks want it to be — and there’s nothing wrong per se about that sentiment. While I realize a raging debate about climate change exists, leading scientists and international government agencies not only acknowledge the problem but warn that it’s been worsening. Both environmentally and politically, EVs offer a viable solution.
On one end of the spectrum, EVs have come a long way in design and convenience. On the other end, they provide ample economic opportunities for the U.S. and allied nations. Thus, the Sweden-based Polestar is palatable on multiple fronts, boding well for GGPI stock.
However, investors recently have been less than enthused. For instance, on a year-to-date basis, GGPI stock is down nearly 6%, reflecting similar negativity clouding many other pure-EV trades.
Of course, it’s only been a week into the new year so you don’t want to read too much into the volatility. But with so much earlier enthusiasm for EVs in general, it’s a conspicuous disappointment.
Also, it doesn’t help that a direct competitor like Lucid Group (NASDAQ:LCID) managed to swing up almost 3% during the same frame.
With the Federal Reserve possibly signaling a much more aggressively hawkish monetary policy than economists previously anticipated, technology-focused investors may choose to go with the safer idea.
For now, that appears to be Lucid, not Polestar.
Covid-19 May Put GGPI Stock on Hold
Significantly, the Swedish EV manufacturer will lead off in the mainstream consumer market with the Polestar 2.
While in my view the Polestar 1 is a much sexier ride, the 2’s $38,400 MSRP after the federal tax credit is applied is the reasonable vehicle of choice. The 1 retails for $155,000, which is a gargantuan amount of money to fork over.
Now, the issue for GGPI stock is that with the Polestar 1, the underlying competition will inevitably be Lucid and the premium vehicles under the Tesla (NASDAQ:TSLA) badge. That’s not an easy job no matter who your backers are.
Therefore, Polestar will naturally aim to accrue its bread and butter from the middle-to-upper-middle income households.
But here’s the problem with that strategy. According to a Wall Street Journal report, Americans are keeping their cars longer to the tune of a 12.1-year average.
To be fair, the stat isn’t necessarily ominous. As you know, combustion vehicles have become much more advanced and fuel-efficient, thus surprisingly rivaling the benefits of EV ownership, depending on a particular consumer’s vehicular usage profile.
Then you factor in the coronavirus pandemic and its downwind economic impacts and you have a potential “backlog” issue for GGPI stock.
With soaring used-car prices, the people who bought during the new normal are paying a hefty premium. Not only that, because many people have been holding onto their rides for so long, when their cars need repairs, they could be serious ones.
Unlike a video game console, personal transportation represents a necessity in many cases.
Therefore, the idea of EV makers convincing consumers to make the transition to electric is an incredibly tough sell. Many bought at premiums that will require years of ownership for the purchase to make sense.
Don’t Look to the Rich for Help
Naturally, Polestar has the option of pivoting to the rich to sell its vehicles, but this is where competition really comes into play.
You have Tesla which has established a brand cachet that will be difficult to usurp. Lucid has generated its own distinct buzz among high-net-worth drivers and automotive enthusiasts.
That’s why I think GGPI stock got off to a slow start this year. Business wise, the underlying company is caught between a rock and a hard place. While it could very well have a bright future, that future may be delayed by five (perhaps more) years due to Covid-19’s consumer impact.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.