Gores Guggenheim (GGPI) has announced a merger with Polestar. The stock has been volatile lately after the bumper listing from Rivian. Will GGPI stock rise more after the merger date?
Over the last year, several startup EV companies have gone public through a SPAC reverse merger. The startup EV companies include success stories like Lucid Motors, which was arguably the most hyped merger of 2021. On the other end of the spectrum, we have Lordstown Motors (RIDE), which has fallen over 50 percent from the SPAC IPO price and it's a penny stock now.
GGPI will merge with Polestar in the first half of 2022.
GGPI hasn’t announced a definitive merger date with Polestar but the two companies expect to complete the business combination in the first half of 2022. After the merger, the combined entity will be renamed Polestar Automotive Holding UK and trade under the ticker symbol “PSNY” on the Nasdaq.
SPAC stocks usually see upside around the merger date.
In most cases, SPAC stocks see an upside after the merger is approved. Also, once the merger is completed and the merged entity starts trading, we usually see some momentum. It isn't certain that GGPI will go up after the merger completion and a lot will depend on the EV market sentiments.
The key reason GGPI stock has gone up in November is because of the stellar response to Rivian’s (RIVN) IPO. While RIVN stock has come off its highs, it still commands a market cap of $100 billion. Rivian’s IPO led to a rerating of other EV names.
The upside in Polestar stock will depend on the execution.
Looking at the EV markets, investors have been willing to pay a premium, and a quite hefty one, for quality EV companies that are executing well. Lucid Motors stock surged when it started deliveries. Similarly, Rivian has also started delivering its vehicles.
Looking at other startup EV companies, RIDE stock has tumbled after the company faltered on execution and delayed the delivery timeline to the third quarter of 2022, which was a year behind schedule. In contrast, Canoo brought forward the delivery timeline to the fourth quarter of 2022, which led to a spike in the stock.
This is where Polestar stands out compared to other startup EV companies. Polestar already has two models under production and expects to launch more models by 2025. The company expects its deliveries to rise 29-fold between 2020 and 2025 and reach 290,000. Similarly, its revenues are expected to rise to $17.8 billion in 2025.
Polestar looks undervalued compared to Lucid and Rivian.
The deal with GGPI valued Polestar at an equity value of $21.3 billion. Based on the current GGPI stock price, we get a pro forma market cap of around $28 billion. The valuation is way below what Rivian and Lucid Motors are currently commanding. Looking at the comparatively lower valuations, Polestar looks like a good EV stock to buy ahead of the merger.
The backing from Volvo would also add value to Polestar. While a lot of EV companies, including Tesla, have struggled with production at times, support from a seasoned automotive producer would help lower Polestar's execution risk.
Polestar is expanding its manufacturing footprint and will gradually launch into new markets. Successful production and deliveries could take the stock much higher than the current levels.