Further EV Bubble Deflating Could Make Gores Guggenheim a Steal

Thomas Niel

February 28, 2022 4 min read

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As electric vehicle stocks have declined across the board, the time to bargain hunt in this space may be now. But instead of going with the most popular, high-profile plays, you may want to go with Gores Guggenheim (NASDAQ:GGPI) stock.

A close up of a Polestar vehicle in front of a company sign.

Source: Jeppe Gustafsson / Shutterstock.com

Why GGPI and its merger with Polestar rather than a more popular name, like Lucid (NASDAQ:LCID)?

Good question. For starters, this special purpose acquisition company is the leading dark horse among the early-stage EV contenders. The market is skeptical that Sweden-based Polestar, backed by Volvo (OTCMKTS:VLVLY) and its parent company, China-based Geely (OTCMKTS:GELYF), can capture a meaningful share of the luxury EV market.

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However, this uncertainty is more than factored in the stock price. Compared to its early-stage peers and based on its implied post-deal valuation, GGPI is far more reasonably priced than LCID, not to mention other hot EV names like Rivian (NASDAQ:RIVN).

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Even better, as the EV bubble continues to deflate, chances are shares will fall to a more opportune price between now and when its SPAC deal closes.

You may want to take your time before buying. Yet once this sector bottoms out, GGPI stock is a name to snap up.

With So Many EV Plays Out There, Why Buy GGPI Stock?

Admittedly, a low valuation shouldn’t be your only criteria for selecting Gores Guggenheim over other electric vehicle stocks. There are plenty of these companies that are “cheap” on paper (i.e., based on future projections). These low valuations make sense given the high risk with startups failing to live up to their promises.

Fortunately, that may not be the case with GGPI stock. Polestar may have a lot of work ahead of it before it’s at the point of delivering a six-figure amount of vehicles per year. Yet given what it has achieved so far, I wouldn’t write off its chances.

In 2021, it sold 29,000 vehicles, up 185% year-over-year. By comparison, only this year Lucid anticipates making a similar number of deliveries. This year Polestar, which is already in 19 markets, plans to expand into six more markets, and another five by the end of 2023. With current annual estimated sales of $1.6 billion, it could be generating 10x that amount within three years.

Again, at today’s prices (around $11), its implied valuation is far lower than peers. Still, now may not be the best time to dive in.

Gores Guggenheim Is Cheaper Than Its Peers

Compared to Lucid and Rivian, GGPI stock has seen a relatively smaller drop in price from its high-water mark. If you had bought it near its top ($16.41 per share), you would be down around 33%. By comparison, buying LCID near its all-time high ($58.05 per share), you would be underwater around 55%. And Rivian is sitting on a paper loss of around 64%.

But even as GGPI stock saw a modest decline, Gores Guggenheim continues to trade at a far lower valuation.

Per numbers provided in its SPAC merger presentation, once the deal wraps up there will be 2,125 billion Polestar shares outstanding. At today’s prices, that means an implied market capitalization of around $23.375 billion. That’s just 3.5x projected 2023 revenue.

Compare that to Lucid, which sells for around 7.6x its estimated 2023 sales of around $5.53 billion. Or, Rivian, which today sells for around 7x projected 2023 sales ($8.2 billion).

That said, I wouldn’t take this big valuation gap to mean there’s little downside. Perhaps there’s less downside risk. Yet as pressure continue on EV stocks from Fed rate hikes and investor caution, there may be the opportunity to buy into this pre-merger SPAC at an even lower price.

There’s an Opportunity Here

Between now and when the deSPACing happens, GGPI stock could see a moderate decline to the high single digits. Those who don’t mind a little more volatility could find it worthwhile to buy Gores Guggenheim (soon to be Polestar) today.

In the low-teens per share, potential upside likely exceeds further near-term downside risk. But if you want to get in at the absolute bottom, you may get that chance in the months ahead.

Even as macro uncertainties stand to put more pressure on EV stocks, the move to electric vehicles isn’t going away. Instead of buying its more popular (and pricier) peers, those looking for exposure to this megatrend may find buying GGPI stock a better way to do so.

On the date of publication, Thomas Niel did not have (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.com Publishing Guidelines.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.