What happened
The electric-vehicle (EV) market got overheated in 2021, but it cooled considerably as the year wore on, which explains why Gores Guggenheim (GGPI), a special-purpose acquisition company (SPAC) expected to merge with Swedish EV maker Polestar Automotive in the first half of this year, saw its stock fall 13.1% in December, according to data from S&P Global Market Intelligence.
While the proposed $20 billion reverse merger between Polestar and Gores Guggenheim should be an enticing driver for investors, the EV maker is caught up in the automotive industry's chip shortage problem, and Polestar CEO Thomas Ingenlath is expecting the supply chain issues to drag out well into the year.
Image source: Polestar.
So what
While the chip shortage affects all car manufacturers, from rival EV companies such as Tesla (TSLA -3.40%) to old-line car makers such as Ford (F 6.10%), Polestar has been counting on its new Polestar 2 vehicle to put it on the map with car buyers, because it will be a relatively affordable vehicle at $45,900.
The Polestar 1 goes for a cool $155,000, putting it well out of reach of most car buyers, and if the EV maker can't get components for its new model, that will put it further behind the competition.
Tesla, for example, began working out deals to secure chips early last year, paying up front to ensure it had a ready supply, and when it still faced a crunch, the EV leader substituted alternative chips, rewrote the code, and inserted them into its vehicles to ensure its vehicles kept coming off the assembly line.
Now what
While EVs get a lot of press and are seen as the future of the automotive industry, they still require a lot of subsidies to entice drivers to buy one. That suggests the driving public may not be as enamored of the EV opportunity as the automotive press believes.
For carmakers such as General Motors (GM 1.98%) that say they want to convert their entire fleet to electric by the middle of the next decade, that could be a big problem, even with various global governments calling for the wholesale transition to EVs over the next two decades.
Polestar's problem, then, and by extension Gores Guggenheim's, is that the market is saturated with EV makers, the Polestar vehicles don't stand out as especially revolutionary, and the cars are priced like the competition. Add in a chip shortage delaying production of cars, and Gores Guggenheim's merger with Polestar may not win it the pole position in the race to win the electric car market.