Recently, I went to visit the website of Polestar, the electric vehicle manufacturer that Gores Guggenheim (NASDAQ:GGPI) stock will take public via a reverse merger. Something didn’t quite look right, which made me fearful that I was suffering from a case of the Mandela effect.
You see, the starting price of the budget-friendly (relatively speaking) Polestar 2 at $40,900 following the application of a federal tax credit for new EV purchases seemed excessive, drawing unwanted attention toward GGPI stock.
As it turns out, my memory wasn’t failing me — at least not for this particular instance. Joanna Makris, head of equity research at Boardroom Alpha, stated in her January 2022 article that the Polestar 2 was selling for $38,400 after tax credits.
In just a few months, the price of the EV upstart’s high-volume fighter model increased by 6.5% — truly a sign of the times.
Of course, the spike has little to do with the underlying business of GGPI stock. Rather, severe inflationary pressures — primarily sparked by the unprecedented expansion of the M2 money stock but also at least partially exacerbated by Russia’s war against Ukraine — have imposed worrying headwinds against several industries.
While Polestar isn’t an exclusive victim of the monetary disaster, inflation is putting the company in an awkward position.
Other companies in the EV space like Lucid (NASDAQ:LCID) have a specific audience in mind. On the other hand, Polestar is simultaneously aiming at the upper and middle range of the income spectrum, which is problematic.
Basically, the Polestar 2 wasn’t priced low enough prior to the inflationary mess. Following the spikes in costs of living, the 2 is even more untenable.
Given the escalating circumstances in the world today, it’s unlikely that any EV manufacturer competing in the middle-income space will be able to sustain a low-price advantage.
As I’ve mentioned many times before, the average transaction price for a new EV is now slightly over $60,000. It didn’t get that way merely because companies jacked up prices. Rather, the high cost reflects the reality of our new economic paradigm.
Unfortunately, Polestar has lost credibility that it can compete in this unfavorable environment. And you don’t have to take my word for it. That GGPI stock is trading only a couple cents above its $10 initial offering price tells you everything you need to know.
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.
