Pre-merger special purpose acquisition company (SPAC) Gores Guggenheim (NASDAQ:GGPI) is having a rough time. GGPI stock, which is set to merge with Swedish electric vehicle (EV) maker Polestar, is in trouble due to Russia’s invasion of Ukraine.
Sanctions against Russia are contributing to rising oil prices, and fears of conflict escalation are also creating pressure. The broader markets are in the red, so GGPI stock is not alone in this mess. However, SPACs are generally considered risky, so investors are passing over these picks in favor of safer choices, like dividend and retirement stocks.
Plus, there are a couple of other factors weighing down the stock. The Federal Reserve has raised interest rates, and more increases are expected in the future.
Polestar, a joint venture between Volvo and Chinese automaker Geely (OTCMKTS:GELYF), recently released a video of its upcoming O2 concept car and early photos of its hatchback model. Last year, it sold 29,000 vehicles. With these factors in its favor, now is not the time to abandon ship and sell GGPI stock.
Polestar Is Different From Other EV Startups
Gores Guggenheim’s reverse merger with Polestar is due for completion in the first half of this year. Usually, the pre-merger anticipation leads to sharp increases in the stock price. However, shares have been under pressure due to recent macroeconomic events.
But you have to judge each company on its merits. On that front, Polestar has the goods to deliver.
The luxury EV maker sells cars made in China. The company’s two-door premium plug-in hybrid sports car, Polestar 1, retails for $155,000. However, its Polestar 2 model, available for $47,200, is much more affordable and competes directly with the Tesla Model 3.
The car has been overwhelmingly popular worldwide, with 4,000 reservations in South Korea alone made in one week. Last year, the company sold 29,000 vehicles, representing a year-over-year (YOY) jump of 185%.
Polestar has an exciting future ahead. The company is already paving the road to success with its Polestar 3, which will release next year, followed by two new models in 2024. By 2025, it hopes to sell 290,000 vehicles annually.
The Problem With the ‘Next Tesla’ Argument
Tesla’s (NASDAQ:TSLA) success is largely attributed to its innovative technology and great business model. It doesn’t sell cars directly to consumers, but instead sells them through franchised dealerships. Tesla can control the entire production process and keep its profit margins high by selling high-end cars at a lower price than competitors.
Tesla also has a great brand image that attracts customers with its sleek design, luxury features, and environmentally friendly products. The company’s overall success has made TSLA stock an excellent investment, albeit an expensive one.
However, Tesla has not been invulnerable and cannot survive forever, so other companies are still getting into the electric car market. But as they do, they will have to pay attention to Tesla’s innovations to stay relevant. However, the larger debate is whether investors are bidding up duds, hoping they can get another Tesla-like winner.
Several EV startups that initially seemed promising didn’t live up to the hype. Due to this, many people are cautious about what they invest in.
With Polestar, the good thing is you have a company that is already up and running. Therefore, it does not suffer from the same issues as Lucid Motors (NASDAQ:LCID), which is still struggling with production issues. And with Geely as a backer, the company should handle supply chain issues reasonably well.
This makes Polestar a cut above the rest in the eyes of investors. It may or not become the next Tesla. However, it is already executing several of its plans, putting it in a different league.
Judge GGPI Stock on Its Own Merits
The markets appear to be in a state of disarray. However, if you do your research and believe in the end product, you stand to make substantial gains.
As the merger with GGPI stock nears, the stock is expected to increase quite rapidly and then decrease as the final stages of the merger take place. You shouldn’t pass up on buying shares during their low point, as this might be your chance to capitalize on their future gains.
Once the merger settles and GGPI stock returns to its floor price, you will have another opportunity to purchase shares of this growing business.
On the publication date, Faizan 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.
