We are getting closer to the reverse merger between Gores Guggenheim (NASDAQ:GGPI), a special purpose acquisition company (SPAC), and Swedish electric-car maker Polestar. The deal is expected to close in the first half of the year. However, the markets are not reacting favorably to GGPI stock. And can you blame them?
In recent months, growth stocks have been drowning in red ink and are struggling to maintain their momentum. The Federal Reserve is looking to tighten its monetary policy. Goldman Sachs (NYSE:GS) believes we could be in for at least seven hikes. There is a high level of geopolitical tension due to the Ukraine-Russia conflict.
Due to all these factors, investors are bailing on non-profitable growth stocks. Instead, safer and stable investments, such as retirement and dividend stocks, are getting more attention. Plus, when it comes to electric vehicle stocks, there is a been there done that energy to the space.
You have also-rans in the shape of Workhorse (NASDAQ:WKHS). And you also have the high-risk ones, such as Fisker. Finally, Tesla commands an astronomical valuation while selling a fraction of the cars that traditional automakers manage.
However, as the adage goes, “don’t judge a book by its cover.” Unlike several other electric vehicle start-ups, Polestar is up and running. It delivered 29,000 vehicles in 2021. The figure represents year-on-year growth of nearly 185%, an admirable feat for a budding enterprise. It delivered revenues of $1.6 billion last year and has set ambitious goals for the next few years.
As the merger nears and we have more short-term catalysts, GGPI stock will continue to pop. However, there are compelling reasons you should pick up this stock once it dips after the reverse merger closes.
In Pole Position
Electric cars are not new but have only recently begun to gain traction. There is still a lot of uncertainty about the future of these vehicles and whether or not they will become mainstream because they are expensive to buy.
Investing in electric vehicles can be risky, and if done without proper research, it could end up being a waste of time and money. Complicating matters is that several electric vehicle start-ups are currently at the developmental stage. Therefore, they are trading more on potential than anything else.
That is not the case with Polestar. Here’s some helpful information on the enterprise: Volvo partnered with China’s Geely Motors (OTCMKTS:GELYF) to launch Polestar. Geely holds a commanding position in the Chinese market, selling 1,328,029 units last year.
Polestar offers unique options for those switching to eco-friendly mobility. It has a lineup of cars that includes the Polestar 1 and the Polestar 2. They plan to release three more new models by 2025. Incidentally, the company is hoping for 2025 to be a big year, with a goal of 290,000 deliveries and $17.8 billion in sales.
Polestar has been doing better than most companies in its industry. We are just a few weeks removed from Lucid (NASDAQ:LCID), slashing its production target by 40% for 2022. Some investors are still recovering from the financial problems associated with the Workhorse debacle.
Meanwhile, Polestar does not suffer from any of these failings. The company offers many tangible benefits over competitors such as high return on investment (ROI), early adoption, and a much greater long-term viability. Therefore, whether in the near term or long term, GGPI stock is an interesting investment.
What Are Bears Concerned About?
As mentioned in the intro, there are certain concerns investors have regarding growth stocks at the moment. However, when we talk about Polestar itself, certain bearish arguments are worth considering.
First, over the last few years, a glut of EV SPACs has come and gone. Usually, the story goes that investors make some nice change before the penny drops and the merger closes. Then most companies fade into the background. Also, while Polestar has avoided any major issues thus far, that does not mean it could not face the same challenges that companies like Lucid are facing at the moment. All it takes is one bad press release in this space, and things will start going south.
At the same time, any company with a connection to China is looked at skeptically. However, on this point, although Polestar is taking advantage of its Chinese associations, it is a Swedish enterprise and is not structured like a variable interest entity (VIE).
So, Polestar is a global company that wants to broaden its reach by opening several manufacturing facilities and implementing sales networks worldwide.
The Bottom Line
Electric vehicles are becoming more popular, and many companies are investing in them. However, these stocks are risky because they can easily lose value.
However, electric vehicle stocks will become more common and less risky in the future. The technology for electric cars is improving rapidly and will be used in more places. With this momentum, the value of these stocks will likely rise significantly in the future.
Therefore, you have to pour capital into a company that is executing its strategy effectively. Polestar has ambitious plans for the future and is growing rapidly. As the merger date approaches, GGPI stock could rise on positive news such as stockholder approvals, for example. But even beyond this, Polestar will be a great investment once it starts trading.
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.
