Gores Guggenheim Is a Solid Long Term EV Play at $11

Thomas Niel

March 24, 2022 4 min read

GGPIU

With its merger with Polestar still pending, Gores Guggenheim (NASDAQ:GGPI) is holding steady. At $11.29 per share at the start of March 23, GGPI stock trades at a small premium to its SPAC (special-purpose acquisition company) offering price.

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

Source: Jeppe Gustafsson / Shutterstock.com

As I’ve detailed in recent coverage, the market has been overly cautious about this EV stock. This comes despite the fact this company, based on its initial success in Europe, has in many ways made more progress than more popular early stage EV plays like Lucid (NASDAQ:LCID).

Still, even if misunderstood by the market, I wouldn’t expect it to zoom higher anytime soon. In fact, it may instead continue to drop in price, especially after the SPAC deal wraps up later this year.

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That’s bad news, of course, for investors looking at it as a possible short-term trade. But for investors seeing it as a long-term play on vehicle electrification, further weakness may be an opportunity rather than a deal breaker.

GGPI Stock and Possible Near-Term Downside

The smooth ride Gores Guggenheim has been on since December could get bumpier both before and after its upcoming de-SPAC merger, which is expected to happen by the end of June.

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First, in the time between now and the deal closing, the factors helping GGPI stock stay above its SPAC price could fade. Those factors include the increased awareness for Polestar and the modest level of buzz that has come back to EV plays since the start of Russia’s invasion of Ukraine. The resultant run-up in energy prices has been seen as something that’s bullish for the mass adoption of electrified vehicles.

As the big jump in awareness of Polestar and its upcoming public debut gets absorbed, this factor will likely cease to help prop up the stock. In addition, the buzz around accelerated EV adoption could quickly fade as well. There remain many obstacles in the way of EVs gaining critical mass.

Second, once the de-SPAC happens, many buying today could cash out. Not only that, but focus will shift to the company’s results, guidance and updates once the deal closes. If these numbers fail to live up to expectations (like we’ve seen recently with Lucid), GGPI stock could see a drop much like the one LCID took after scaling back production plans.

Why Another Drop May Be a Positive

Given there are numerous ways GGPI stock could drop in the months ahead, investors buying it as a near-term trade may want to reconsider. It’s not a sure thing that it’ll make a leap back to its all-time high ($16.41 per share) post de-SPAC. Even worse, there’s a risk it drops to single-digits, either due to EV enthusiasm cooling again or the company releasing disappointing news.

But while it may not make a great short-term trade, that doesn’t mean long-term investors should avoid it. No, it wouldn’t be a good thing if the company, like Lucid, announced that it was walking back its production goal for 2022. Having to scale back plans to produce 65,000 vehicles this year would call into question its ability to produce 290,000 vehicles by 2025.

Then again, Polestar’s valuation prices in a lot more uncertainty. It continues to trade at a lower multiple of future revenue than Lucid. Based on its post-deal share count, this company has an implied value of around $24 billion. That is around 1.4 times projected 2025 revenue of $17 billion. According to a Motley Fool contributor’s numbers, Lucid’s 2025 revenue projection comes in at $14 billion. This means LCID stock trades for around three times future sales at today’s prices.

A drop from around $11 per share to a single-digit price would further widen this valuation. In turn, that would lead to an overreaction rather than an accurate reassessment of its valuation. From there, adding to (or initiating) a position could be worthwhile, as even falling slightly short of initial estimates could still result in the stock experiencing an outsized jump, due to it exceeding lowered expectations.

GGPI Stock Is a Good Long-Term Opportunity

Given it’s not guaranteed Gores Guggenheim slides in price from here, you may want to lock down a position today. Although it could get volatile, in the years ahead, assuming it scales up at a rate in-line or near current expectations, it could see material price appreciation.

Still offering a better risk/return proposition than Lucid and other names exiting the pre-revenue stage, a GGPI stock pullback may be bad news for traders, but an opportunity to double-down for those treating it as a long-term EV play.

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.