What happened
Shares of several blank-check companies that are planning to merge with future-mobility start-ups were trading lower on Thursday. In an interview with CNBC, Securities and Exchange Commission chair Jay Clayton said the agency is examining the disclosures of such companies in the wake of allegations that electric-truck start-up Nikola misled investors.
Here's where things stood for these four companies as of 11 a.m. EDT, relative to their closing prices on Wednesday.
- DiamondPeak Holdings (DPHC), which is preparing to merge with electric-pickup start-up Lordstown Motors, was down 13%.
- Graf Industrial (GRAF), which will merge with sensor-maker Velodyne Lidar, was down 11.6%.
- Spartan Energy Acquisition (SPAQ), which is on track to merge with electric-vehicle start-up Fisker, was down 5.6%.
- Tortoise Acquisition (SHLL), which will merge with electric-truck drivetrain maker Hyliion next week, was down 7.7%.
So what
All four of these companies are special purpose acquisition companies. These companies, often called SPACs or blank-check companies, don't have ongoing businesses of their own. Instead, they exist to acquire or merge with early-stage companies, taking them public in the process.
SPAC deals involving electric-vehicle and mobility companies have gained a lot of attention from auto investors in recent months, following the merger of SPAC VectoIQ Acquisition with Nikola (and the subsequent soaring of the merged company's stock).
Tortoise Acquisition's merger with Hyliion is on track to close next week. Image source: Hyliion.
These four companies' deals all follow a similar model to the deal that took Nikola public: The SPAC raises money from investors and a public offering, it and outside investors bring cash to the start-up, the SPAC and the start-up merge, with the outside investors getting private placements of stock at a good price, and the surviving public company is given the start-up's name.
But over the last two weeks, as Nikola has faced serious allegations that it misled investors, these deals have drawn attention from others, namely short-sellers and -- especially -- regulators. That's why these stocks are down today.
Now what
Investors should note that these four start-up companies are in dramatically different stages of growth.
- Fisker has a veteran team and a design for an electric SUV, but its manufacturing plans are still hazy.
- Hyliion has established partnerships, is already shipping its first product, and (once the merger closes next week) will have ample cash to bring its core product to market.
- Lordstown has a truck designed, a factory, a partnership with General Motors, and some preorders. It expects to have its truck in production by the end of 2021.
- Velodyne Lidar, which makes the automotive-grade lidar sensor units used by most self-driving research programs, has an enviable list of customers -- but as of now, its sales volumes are still fairly small.
Long story short: Auto investors eyeing these beaten-up stocks are strongly encouraged to do careful research before jumping in.
