Polestar, a Swedish electric vehicle (EV) maker controlled by Volvo (OTCMKTS:VLVLY) and Chinese manufacturer Geely (OTCMKTS:GELYF) plans to go public soon. It will do this through a reverse merger with a special purpose acquisition company (SPAC) called Gores Guggenheim (NASDAQ:GGPI). When that occurs sometime this quarter GGPI stock could get a huge boost based on comparable values with other EV makers.
Recently the CEO of Polestar, Thomas Ingenlath, told Bloomberg that he thinks the stock could get a spike once it goes public. He said that he thinks the company will be “well above” a $20 billion valuation. Based on my calculations Polestar could end up with a significantly higher valuation than this.
Right now Polestar has a “see-through” market capitalization of almost $26 billion. That is because page 37 of its slide deck shows 2.1253 billion shares at the close of the reverse merger. Since GGPI stock closed at $12.21, the result of multiplying this by 2.1253b is $25.95 billion.
If we can compare this valuation to a comparable measure using the Tesla (NASDAQ:TSLA) market cap of $1.07 trillion (i.e., $1,070 billion) now. For example, last year Polestar successfully made its production goal of 29,000 EVs, and this year it expects to make 65,000 EVs. But Tesla made 930,000 EVs last year and this year it could reach over 1.4 million or higher. We can use this to value Polestar (and by implication GGPI stock).
So if we divide Tesla’s market cap by its production rate for this year we get an estimated market cap of $764.29K per EV. Then if we multiply this by Polestar’s 65K forecast car production this year, we get a market cap of $49.678 billion — almost $50 billion. This is 91.4% higher than Polestar’s present “see-through” market cap now of $25.95 billion. It implies that GGPI stock is now worth at least $23.73, instead of its price today of $12.21.
Moreover, Polestar just announced this week that Hertz Global (NASDAQ:HTZ) will buy 65,000 Polestar EVs over the next five years. That could act as a serious catalyst for Polestar (GGPI stock now) to reach this higher valuation when it goes public.
That is what the CEO meant when he said he thinks the stock will be well above its present price. So investors in GGPI stock could be in for a potential gain when the deal closes.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.