Back down to near its original special purpose acquisition company (SPAC) offering price, you may think now is a good time to buy Gores Guggenheim (NASDAQ:GGPI). I’ve argued why this SPAC, which is taking electric vehicle (EV) maker Polestar public, is a great EV play. However, giving things a second thought, buying GGPI stock immediately may not be the best move. Why? Instead of surging after its de-SPACing happens, it could stay stuck at current prices. Or worse, it could sliver down to single-digits.
The reasons for this are twofold. First, there’s a strong chance EV stocks continue to see downward pressure. The Federal Reserve (Fed) is moving full steam ahead with its hawkish pivot in order to bring down inflation. Rising interest rates will make it hard for speculative growth stocks valued on future potential earnings to move higher. Even though there was a rally after the Fed’s latest interest rate hike, concerns about future rate hikes could quickly resume. Yes, given that Polestar’s implied valuation is lower than that of other early-stage EV stocks, like Lucid Group (NASDAQ:LCID), it may seem like it has lower downside risk.
But while the relative-value argument is satisfying, this factor may not limit future declines. This brings us to the second reason why shares could struggle. The market remains skeptical about Polestar’s bona fides as a possible rival to Tesla (NASDAQ:TSLA). In past GGPI stock coverage, I’ve argued that based on its success in Europe, Polestar appears positioned to become a popular EV brand in the U.S. market. With plans to price its Polestar 2 model at $49,000, it’s smartly targeting the mass affluent segment of the American auto market. Still, grabbing market share from incumbent Tesla may prove to be a challenge.
Tesla’s Model 3 has a similar sticker price and range specs as the Polestar 2. With little to set its vehicle apart, U.S. customers will likely keep on choosing the better-known brand. In turn, this adds heavy uncertainty to this would-be “Tesla killer” and its growth ambitions. Down the road, it may have to walk back projections calling for it to grow its revenue from an estimated $3.1 billion this year to $17.6 billion in the span of three years.
Unlike last year, market conditions are unfavorable to growth stocks. This may limit its ability to spike higher after its de-SPACing. Not only that, there is more pessimism about its growth prospects than with Lucid. It could stay stuck around the $10 per share price level. It could, like we’ve seen with some other EV “also-rans,” fall far below the $10 per share mark. For now, it’s best to wait and see with GGPI stock.
On the date of publication, Thomas Niel 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.