Gores Guggenheim (GGPI) and Polestar announced their merger in September. The deal, which gives Polestar an implied pro forma equity value of approximately $21.3 billion, is expected to close in the first half of 2022. Many people want to know if GGPI stock is undervalued before its merger with Polestar.
Polestar is an electric vehicle company based in Sweden. The company was founded in 2017 by Volvo Cars and Zhejiang Geely Holding. The GGPI SPAC is backed by billionaire Alec Gores and investment bank Guggenheim Partners.
The GGPI-Polestar merger details
The business combination is expected to close in the first half of 2022. The boards on both sides have unanimously approved the transaction. They just need to get approval from GGPI SPAC shareholders. Once the merger closes, Polestar stock will trade under the ticker symbol "PSNY" on the Nasdaq.
According to the merger deal, Polestar will receive over $1 billion in gross cash proceeds to pursue its growth plans. The cash includes $800 million held in trust by GGPI and $250 million in PIPE from top-tier institutional investors.
Polestar’s stock forecast
Polestar’s offering includes two models—the hybrid car known as Polestar 1 and the all-electric Polestar 2. The premium EV maker previously stated that it's working on another vehicle called the Percept, which is a larger sedan. In 2020, the company delivered 10,000 vehicles globally. The company expects to sell about 29,000 vehicles in 2021 and 290,000 vehicles in 2025.
Polestar has projected revenue of $1.6 billion in 2021 and expects its revenue to rise 99 percent YoY to $3.2 billion in 2022. The company expects to report revenue of $17.8 billion in 2025. Polestar expects to turn EBITDA-positive in 2023 and foresees an EBITDA of $2.1 billion in 2025.
Is Polestar undervalued?
GGPI has assigned Polestar a pro forma implied equity value of $21.3 billion and an EV (enterprise value) of $20.0 billion. Based on this, its EV-to-2021 sales multiple is 12.6x, which is steep. The multiple for 2024 is 1.5x, which seems more reasonable. In comparison, Tesla and Lucid Motors have 2024 EV-to-sales multiples of 9.3x and 3.6x, respectively.
GGPI stock is a good buy before Polestar merger
Polestar’s plan to go public comes as manufacturers shift their attention to environmentally friendly cars in response to increased pressure from lawmakers and investors' concerns about climate change. Polestar already has an advantage over Lucid in the EV market since two of its models, Polestar 1 and Polestar 2, are already running in North America, Asia, and Europe.
Polestar touts its asset-light business model as a key differentiator, with existing manufacturing lines provided by backers Geely and Volvo. This allows Polestar to focus on research and development activities.
In April, Polestar raised $550 million in external funding. In June, the company revealed plans to start producing Polestar 3 electric sport utility vehicles at Volvo's U.S. factory in South Carolina in 2022. The company plans to launch three new models by 2024. Overall, GGPI stock is currently trading near its IPO price of $10, which gives investors a chance to get in on this long-term play at a reasonable price.