It's been a busy year for electric vehicle (EV) IPOs despite the fact that many EV stocks haven't actually been using them!
Instead of an IPO -- initial public offering -- many electric carmakers are opting to use another process entirely to make their stock market debuts. The "reverse merger" was used instead of an IPO by electric truck maker Nikola (NKLA 1.00%) and electric drivetrain manufacturer Hyliion, among many others.
Here are the top three stock market debuts that electric car enthusiasts should keep on their radar screens.
IPO vs. SPAC
First, investors need to know how these reverse mergers with special purpose acquisition companies (SPACs) differ from classic IPOs. The end result is pretty much the same: The public can buy shares in a formerly private (or otherwise non-public) company for the first time on a stock exchange. In fact, some consider these reverse mergers as a type of IPO. However, there are a couple of important differences.
One difference is that SPACs are companies that don't do anything: They exist for the sole purpose of bringing another company to market through the reverse merger process. While SPACs are publicly traded, they don't have any major revenue-generating operations. Once the SPAC acquires the company it's bringing public, it will assume that company's name, operations, and financials. That's how the SPACs Tortoise Acquisition and Graf Industrial became Hyliion and Velodyne Lidar, respectively.
The biggest difference for investors is that, because a SPAC is by definition a publicly traded entity, you can buy stock in it before any reverse merger has taken place, at whatever the prevailing share price is rather than waiting for an IPO date. That means that once an upcoming reverse merger is announced, shares in the SPAC usually spike quickly. However, it's important to remember that nothing's guaranteed until the reverse merger is executed. Until that time, investors only own shares in the SPAC, which has zero revenue.
Now that you know what's up, here are the three debuts to keep an eye on.
Lordstown Motors: reverse merger, Q4 2020
Nikola rival Lordstown Motors -- which plans to build electric pickup trucks in the former General Motors plant in Lordstown, Ohio -- has signed a definitive agreement to reverse-merge with SPAC DiamondPeak Holdings (DPHC). The combined company will be listed on the NASDAQ under the symbol RIDE. The deal is expected to close sometime this quarter.
By already having a manufacturing facility -- which it picked up on the cheap, no less -- Lordstown is already one step ahead of Nikola. It also has an innovative design in its Endurance all-electric pickup truck, which has a separate motor along with integrated software located in each wheel. Lordstown anticipates the first production models of the Endurance pickup to roll off the line in 2021.
Karma Automotive: IPO, date unknown
Karma Automotive has been around since 2007. It was the first electric car company to be founded by Danish American car designer Henrik Fisker. Fisker sold the company -- called Fisker Automotive at the time -- to Chinese company Wanxiang Group in 2014, and it was renamed Karma Automotive. Since then, the company has focused on luxury electric vehicles.
In late July, Karma Chief of Staff Mikael Elley announced that the company was in talks with various investment banks, seeking funding to go public. According to Elley, the company was hoping to take advantage of the "red hot market" for EV IPOs.
Despite that apparent haste, no firm commitment has been made, but the company is in the process of rolling out several new models, so it's definitely worth keeping an eye on for a potential IPO announcement.
Fisker Inc.: reverse merger, Q4 2020
Wait...didn't we just talk about Henrik Fisker's electric car company? We did, but this is his other electric car company, named Fisker Inc. as opposed to Fisker Automotive. That's right: After selling his original self-named company in 2014, Henrik Fisker turned around and founded a second self-named EV company in 2016. This time, Fisker has focused on developing a higher-end, battery-electric SUV, the Fisker Ocean, which will debut in 2022. A battery-electric sedan, the Fisker Emotion, is slated for 2023.
In the meantime, Fisker has agreed to go public through a reverse merger with SPAC Spartan Energy Acquisition (SPAQ). The deal was slated to close on August 14, but Spartan requested a six-month extension and said it anticipated a December closing. On Sept. 11, however, Spartan filed preliminary merger paperwork with the Securities and Exchange Commission (SEC), which means a deal could happen sooner rather than later.
Investors interested in electric carmakers should definitely keep these three on their radar screens, but they may not want to buy in just yet. While it's unlikely that an announced reverse merger will fall through, remember that deals aren't done until the ink is dry.
Even assuming Lordstown, Karma, and Fisker successfully go public, their plans may hit any number of snags. The electric vehicle space is getting pretty crowded, and there's no guarantee that any particular electric car -- or electric car company -- will succeed in an unsettled market. Weigh the risks carefully before you buy.