October 19, 2020 BARRON’S 17
with SPACs. Three of them are fo-
cused on making battery-powered
cars, SUVs, vans, or pickup trucks:
Fisker, which plans to link up with
Spartan Energy Acquisition
(SPAQ); Canoo, withHennessy Capi-
tal Acquisition(HCAC); and Lords-
town Motors, withDiamondPeak
Holdings(DPHC).
Fisker has the most aggressive
growth target, with a projected $10.
billion in sales in 2024, up from zero
today. Lordstown forecasts $5.8 billion
by then, and Canoo sees $1.4 billion.
Not one had a single dollar of revenue
last year, and none are forecasting
material revenue before 2022.
That hasn’t stopped the stocks from
gaining market values of $2.5 billion
to $4 billion. Ultimately, investors see
the SPACs as one more way to play
the electric revolution that has driven
Tesla(TSLA) to meteoric gains. Tesla
shares are up 425% this year, and
Wall Street is writing about a decade
of hypergrowth for the company. Tesla
CEO Elon Musk thinks the global
industry can make up to 30 million
EVs by the end of the decade. That’s
about a tenfold increase from current
levels.
But the hope of finding the next
Tesla is a risky strategy, particularly
when Tesla itself remains a risky bet.
Leaving profits aside, Tesla and the
Chinese electric vehicle start-ups—
NIO(NIO),Li Auto(LI), andXPeng
(XPEV)—are currently valued at 8.
times their estimated sales in 2021.
That compares with an average of 0.
times for traditional auto makers
General Motors (GM), Ford,Volks-
wagen(VOW.Germany), andBMW
(BMW.Germany).
Using a multiple halfway between
the two groups and a combined $
billion in 2024 forecast sales for
Fisker, Canoo, and Lordstown would
value them at roughly $79 billion by
- Discount that back to 2020 at a
20% annual rate and the value be-
comes about $46 billion in today’s
money. That’s far higher than their
current $10 billion aggregate value,
based on where the premerger SPAC
shares trade. That doesn’t make them
slam-dunk bargains—there are a lot of
ifs. Even if the sales come through, the
companies eventually have to make
money, and the SPACs are making
even rosier forecasts there.
Together, the three companies ex-
pect to have margins, measured on
Ebitda—earnings before interest,
taxes, depreciation, and amortiza-
tion—in the 14% range in 2024. That’s
a fair margin based on other tradi-
tional and electric vehicle makers. But
the old-line companies have benefits
of scale that the start-ups don’t. Tesla’s
Ebitda margin was about 1% when its
sales were comparable to what the
SPACs are projecting for 2024. Batter-
ies were more expensive back then,
but either way the SPACs’ margin
assumptions are aggressive.
And the other coming SPAC merg-
ers don’t compare as well with Tesla.
XL Fleet, which has agreed to wed
Pivotal Investment II(PIC), and
Romeo Systems—combining with
RMG Acquisition(RMG)—are EV
component suppliers. They help cor-
porations electrify their current fleet
of vehicles.
XL Fleet and Romeo are working
on electric powertrains, leaving the
rest of the vehicle to other manufac-
turers. XL Fleet has the distinction of
being the only company in our SPAC
group with actual revenue last year,
although it lost nearly twice as much
as it earned on those sales.
These powertrain suppliers look
like more reasonable bets, based on
current valuations and published ex-
pectations. But they might never
achieve the same lofty multiples as the
rest, given their less differentiated
products in a price-sensitive market.
QuantumScape, the last of the com-
ing electric vehicle SPACs, could be
the toughest to value. It’s the priciest
of the group, with a market cap of
almost $7 billion. The company is try-
ing to bring a new technology—solid-
state batteries—to market.
It makes sense to compare Quan-
tum to other fast-growing battery
makers, but the options are limited.
China’s CATL is one of the largest
battery manufacturers in the world,
and its shares trade at about eight
times estimated 2021 sales. CATL is
expected to generate about $7.5 billion
in sales, with Ebitda margins of 22%
in 2020. (Earnings growth is expected
to average about 27% annually for the
next three years.)
QuantumScape predicts that it will
reach $6.4 billion in sales and earn
25% Ebitda margins by 2028, a bold
goal. At a CATL-like multiple, Quan-
tum could be worth $50 billion by
- Discounting that back at 20%,
yields a present value of about $
billion, 125% above the current level.
The problem for investors is that
2028 is a long way off.Barron’swill be
ready with a follow-up then. In the
meantime, drive safely.B
SPACsandEVs:
WhatCould
GoWrong?
A new wave of SPAC mergers will bring six more EV
companies public. None of them have real revenue.
The Next Wave of Electric Vehicle Stocks
Six electric-vehicle companies are due to merge with SPACs,
or special purpose acquisition companies, in the coming
months. They follow recent debuts from rivals Nikola and
Hyliion, which have already gone public via SPACs.
Pending Mergers
QuantumScape Kensington Capital / KCAC $6.4* $6.
Fisker Spartan Energy / SPAQ 10.6 3.
Lordstown Motors DiamondPeak Holdings / DPHC 5.8 3.
Canoo Hennessy Capital / HCAC 1.4 2.
XL Fleet Pivotal Investment II / PIC 1.4 1.
RomeoSystems RMG/RMG 1.2 1.
Company SPAC Revenue (bil) (bil)
2024E Value**
Market
Completed Mergers
Nikola/NKLA $3.2 $7.
Hyliion Holdings / HYLN 2.1 4.
Sources: FactSet; companyfilings
*Based on 2028 revenue forecast, **Based on post-merger share counts
By NICHOLAS JASINSKI
and AL ROOT
I
n the battle for 2020 stock mar-
ket hype, it’s hard to beat elec-
tric vehicles and SPACs, or spe-
cial purpose acquisition
companies. Sure enough, Wall
Street has found a way to merge
the two—literally. After two
high-profile EV companies went pub-
lic through SPACs earlier this year, at
least six more EV-SPAC mergers are
on the horizon.
Nikola(ticker: NKLA) andHyliion
Holdings(HYLN) soared after an-
nouncing their since-closed mergers
with SPACs, sometimes referred to as
“blank-check companies.” At one
point this year, before its stock tum-
bled, Nikola was worth more than
Ford Motor(F).
All the attention brings new impor-
tance to the next round of EV-SPAC
deals. Investors should handle them
with care. These SPAC stocks—al-
ready trading at prices that take into
account the anticipated deals—have
market values as high as $6.5 billion.
None of them get any coverage from
Wall Street analysts.
The companies themselves offer a
bullish view of their future. The SPAC
merger documents contain revenue
and profit forecasts that go out as far
as 2028. Not surprisingly, the esti-
mates vary wildly. There is little con-
sensus on just how big the electric
vehicle market could actually become,
and investors are paying wildly differ-
ent amounts for future earnings.
Barron’scompared projections from
the eight EV and EV-related compa-
Matthew Hatcher/Bloombergnies that have merged or are merging
An electric pickup
truck from Lords-
town Motors being
unveiled in June.