Special purpose acquisition companies, or SPACs, were hot commodities last year, raising over $160 billion in 2021 -- twice as much as the year before -- with hundreds more of them waiting in the wings today.
But the market for these blank-check companies has cooled off considerably since then, as many went on to significantly underperform. Turns out, too much of a good thing can be too much.
The Polestar 1 electric car. Image source: Polestar.
Gores Guggenheim (GGPI +0.00%), which plans to take Swedish luxury electric vehicle (EV) maker Polestar public, has been one of those SPACs on a roller coaster ride.
It soared as high as $16 a share last November when EV maker Rivian debuted on the stock market, but eventually tumbled back down to around $10, where it has pretty much traded since.
The SPAC expects to complete the merger with Polestar sometime over the next few months, and with Gores Guggenheim's stock rising in recent weeks after Polestar announced a series of high-profile deals (Hertz just agreed to purchase 65,000 of its EVs over five years), now is a good time to ask whether the SPAC is a buy.
Ready to hit the accelerator
Polestar's first vehicle, the aptly named Polestar 1, is a high-end EV that starts at $155,000, but the Polestar 2 that it just began delivering in the U.S. is a more affordable $46,000, and the Polestar 3 SUV will be coming later this year.
It is now ready to be a contender against Tesla (TSLA 0.59%), though it will need to sell a lot more of its stylish EVs to really make a dent in the market share of its rival, which delivered over 936,000 vehicles last year.
Tesla has had a decade or so to build up to the point where it is selling almost half the number of vehicles of the biggest-selling brand in the U.S., Toyota, which sold 2.3 million in 2021. Whether Polestar has the potential to do so remains to be seen.
The Polestar dashboard. Image source: Polestar.
Getting its ducks in a row
Polestar has been lining up partnerships within and outside the automotive world. It is an outgrowth of the Swedish automaker Volvo (VLVL.Y 1.71%), which designated Polestar as its high-end performance-car brand, so it has important industry and financial backing. But now it will be competing against its parent's own vehicles.
Volvo also arranged for Alphabet's Google to develop for Polestar the world's first built-in Android-powered operating system, and later this year Qualcomm's Snapdragon Cockpit Platform will help power the system.
Now Polestar is striking out on its own. Its vehicles can seamlessly charge at any ChargePoint station, and an in-car app handles the billing and payment; it has another deal with Electrify America to provide two years of free charging to new and existing customers; and its vehicles can also be rented from Enterprise, in addition to Hertz. So Polestar is beginning to gain traction.
A Polestar charging at an Electrify America station. Image source: Polestar.
Speed bumps ahead
Yet it's not all green lights and open roads. While Polestar vehicles are somewhat stylish, they're nothing revolutionary, and the market is chock-full of EV makers.
Beyond Tesla or Rivian, there are Lucid, Sono, Nikola, Lordstown, and Canoo to name a few, not to mention all the old-line automakers like Ford, GM -- and Volvo.
There are also the ongoing chip shortage and supply chain crisis, though these affect all automakers.
One EV among many
EVs still make up just a small portion of the total auto market, though it is growing, and mandates like those in Europe that are phasing out cars powered by fossil fuels will no doubt help. But without an EV to really differentiate itself from the competition, there's nothing to suggest Polestar will rocket to the forefront.
The EV maker and, by extension, Gores Guggenheim seem to have at least as good a chance as any to find a niche and grow into it. But because of the saturated nature of the EV market, I wouldn't go all-in on the SPAC's stock, though I don't think an investor interested in the space should shy away from it, either.
