One look at Tesla’s (TSLA) stock in 2020 tells you that Wall Street loves electric vehicles (EVs).
However, Tesla is not the entire EV market. There are other companies
in the space that are just as exciting.
A great way to invest in these other opportunities is
through the use of a couple of special purpose acquisition vehicles, or SPACs.
So what exactly
are SPACs?
In simple terms,
SPACs are blank check or shell companies that go public with the idea that its managers will go
out and find a company to buy. If a suitable target is not found within a
specified time (usually two years), investors’ money is returned.
In a typical SPAC listing, the shell company sells a “unit” in
its IPO for $10 dollars each. The unit includes one common share and a warrant
to purchase another share later, typically at a strike price of $11.50.
If the SPAC does find an operating business to purchase within
the two-year time limit, shareholders get to vote to approve the deal. If they
decide to vote “no” and redeem their shares, they can get their $10 back in
cash, plus interest.
SPACs have transformed from a niche part of
the stock market to an extremely popular alternative route to the public market
for some very exciting companies.
And that includes two companies in the
electric vehicle space that are going public soon, as mergers with SPACs.
QuantumScape
The first company is QuantumScape,
a battery start-up company backed by auto powerhouse Volkswagen,
Silicon Valley’s Kleiner Perkins, as well as Bill Gates’ Breakthrough Energy
Ventures.
Volkswagen is its largest shareholder, having
invested $300 million into the company.
The company seeks to commercialize a
technology it says will nearly double the range of an electric car.
QuantumScape adds that its technology offers a significant improvement to the
energy storage of a regular lithium-ion battery, while also being safer and
cheaper. The
company also claims its solid-state batteries can reach 80% of capacity in 15
minutes.
QuantumScape’s battery
cells use a solid ceramic electrolyte rather than the liquid one seen in most
conventional lithium-ion batteries. The battery also contains a lithium metal
anode rather than a graphite one, which allows the battery to store more energy.
QuantumScape, which was spun out from Stanford
University in 2010, is merging with Kensington Capital Acquisition
Corp (KCAC) in a deal valuing it at $3.3 billion. Its goal by 2028 is to make
enough batteries for 910,000 vehicles a year. That’s about the time by which industry
experts believe solid-state lithium metal batteries will become commonplace.
The company says its batteries will actually
not hit the market until 2024. If you want a company that has a business here and now, look at
this:
ChargePoint
The world’s largest electric vehicle charging
business—ChargePoint—will list its shares through a reverse-merger with
another SPAC.
ChargePoint’s existing investors include auto
giants Daimler and BMW, the engineering firm Siemens as
well as the U.K. investment trust Baillie Gifford, which has
large holdings in technology companies including Tesla.
The company’s CEO, Pasquale Romano, told the Financial
Times: “We are in a breathtakingly large market”—and he is correct. Demand
for electric cars has risen across the world despite the pandemic.
ChargePoint was founded in 2007 and installed
its first recharging stations a decade ago, generating revenues, so it is a
legitimate business. To date, the company has partnerships with 4,000
businesses including retailers, Target and Ikea, and it has already installed more than 100,000
charging points across the U.S. and Europe, with an additional 130,000
available through roaming agreements with other providers. That said, many more
stations are needed—especially with some of the leading developed countries
phasing out sales of new internal combustion engine models within the next 15
years.
With ChargePoint still
in expansion mode, the company did report a 2019 net loss of $133 million on
revenues of $147 million.
ChargePoint will merge with Switchback Energy
Acquisition (SBE) in a $2.4 billion deal.
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