Polestar EVs Are Too Niche for Long-Term GGPI Stock Growth

Gores Guggenheim (NASDAQ:GGPI) stock represents a Special Purpose Acquisition Company (SPAC) taking electric car company Polestar public.

Polestar EV store. Electric car and Chinese customer in store. Polestar is a Swedish automotive brand owned by Volvo Cars and Geely (GGPI)
Source: Robert Way / Shutterstock.com

You may remember Polestar from its Super Bowl ad. The ad took direct aim at Tesla (NASDAQ:TSLA) and CEO Elon Musk. (Who laughed it off.) Technology reporters, on the other hand, loved the ad and its message.

You may also be wondering exactly what Polestar is. Think of it as being like Lucid Group (NASDAQ:LCID).While Lucid is Saudi money building electric cars in Arizona, Polestar is Chinese money building them in Sweden (and soon South Carolina).

What’s Polestar?

Polestar is an electric car brand of Geely Motors (OTCMKTS:GELYF). Geely is the biggest car maker in China. Like other Chinese car makers, Geely is moving toward electric vehicles, and it has big ambitions to control its own technology.

You can think of Geely as being a Chinese General Motors (NYSE:GM). But it’s more like the GM of the 1960s than today’s GM. It’s expanding by buying other car companies. Among them is Sweden’s Volvo. When Volvo announced it would back the Polestar initial public offering (IPO), that was Geely talking. But the Polestar 2 will be made by Volvo in Sweden, so it’s often called the “Swedish Tesla.”

Geely is traded in Hong Kong, where its market cap is listed as 112.38 HKD. That’s $15.5 billion American. A year ago, it was worth nearly twice that and, at its peak in the summer, was worth closer to $40 billion.

The Polestar 2 is a high performance electric, close in concept to the Nio (NYSE:NIO). A Wired review compared it with the Tesla Model 3. I think of it as Geely becoming more competitive with JAC Motors, the state-backed auto maker based in Hefei that’s backing Nio. I’ve written about the JAC-Nio relationship before.

As trading opened March 8, Gores Guggenheim stock was fighting to hold $11/share. Back in November it was over $15. At its current price it’s worth about $1.1 billion. Since GGPI is getting a small stake in Polestar, the total value of that company is about $25 billion, as our Mark Hake has written.

Can It Grow?

Hake calls GGPI stock very cheap. This is based on the company’s estimated 2021 revenue of $1.6 billion, with 23,000 vehicles sold. The company’s presentation projects $3.2 billion in sales this year and $6.7 billion next year. If Geely is right, you’re paying just 4.6 times next year’s sales for the stock. His target price for Polestar is $19.08, a huge gain from the present price.

Our Will Ashworth is concerned that Polestar is a niche brand. It’s going into a European market that has ample competition in the luxury electric space. Nio, for instance, has chosen Norway as its European beachhead.

Luxury electrics are hot in Europe right now, taking huge hunks of market share from older gas-powered brands like Tata Motors’ (NYSE:TTM) Land Rover.

The Bottom Line GGPI Stock

Tesla proved that the high end of the car market can be captured by electrics. Nio, Polestar, Lucid and Ford Motor (NYSE:F) are just some of the companies piling into that niche.

But China’s market is where the rest of the world will go over time. As was true with gas-powered cars, the big volumes, and the big profits are going to be in the mid-market. Think Chevy, not Cadillac.

When you buy Polestar stock, you’re buying Cadillac. I’d rather own Geely than Polestar. Electric cars are going to evolve toward the mass market, from the class market. There is not yet a mass market electric for American or even European buyers.

When there is, I’ll be interested in buying that stock. Not before.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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