|To: roto who wrote (641)||10/21/2021 4:53:43 PM|
|From: Julius Wong|
Gores Guggenheim: Polestar Merger Should Entice EV Bulls
Oct. 04, 2021 8:30 AM ET Gores Guggenheim, Inc. (GGPI) FFIE, FSR, LCID, TSLA 4 Comments
SPAC Gores Guggenheim is merging with Sweden's Polestar in a deal valued at $20 billion.
Unlike other EV companies that have gone the SPAC route, Polestar has an established business — and the company has further advantages over rivals.
Valuation is a concern, and the upside here might not be quite as large as for other stocks in the sector.
Still, this is a solid and intriguing story, and the lack of enthusiasm toward GGPI stock seems like a surprise.
Jan Hetfleisch/Getty Images News
What a difference seven months makes. Electric vehicle manufacturer Polestar is merging with special purpose acquisition company Gores Guggenheim ( GGPI) — and investors don't seem all that excited. GGPI stock gained just 4.7% on the news.
To be fair, the deal had been rumored for some time; Bloomberg reported on talks between Polestar and Gores Guggenheim back in July, and GGPI stock did rally on that news. And there was some interest in the deal: volume totaled more than half of shares outstanding last Monday, when the deal officially was announced.
Still, there's an obvious counterpart: Churchill Capital, which in February announced it was merging with Lucid Group ( LCID). Those rumors sparked an all-out frenzy; what was then CCIV stock roared from $10 to as high as $57 the day that deal was made official after the close. And while that rally clearly was based on faulty logic, LCID still has made rather solid gains, closing Friday at $24.61 against a $10 merger price.
In contrast, GGPI stock closed Friday at $10.24, even with the heavy volume last week. Clearly, the appetite for EV SPACs has dimmed, as seen not just in the reaction to the Polestar merger but in trading of post-merger names like QuantumScape ( QS), Arrival ( ARVL), and many others.
But the more negative sentiment toward the space may actually be creating an opportunity in Gores Guggenheim stock, which doesn't necessarily deserve to be lumped in with other EV manufacturers that have gone the SPAC route. Polestar certainly is not a mature company, but it is far more established than the likes of Lucid or Fisker ( FSR). Looking forward, there seem to be real and significant advantages to its model versus other startups in the industry.
Even one of the core hurdles to seeing upside in any SPAC — why is the stock worth much more than $10 when the company is willing to sell equity at that price? — doesn't really apply here, given the exceedingly thin slice of Polestar ownership going to GGPI shareholders.
Certainly, there are risks: this is a company with a pro forma market capitalization of more than $20 billion that still needs to produce and sell significant numbers of vehicles across multiple geographic markets and amid intense competition. Success here is not guaranteed, and valuation remains a question mark.
That said, there's a lot to like here, and a far more stable story than most industry participants have to offer. EV bulls need to seriously consider Polestar, and even investors less optimistic toward the sector should be taking a long look.
Not Just Another EV SPAC
As a business, Polestar has two core differentiators against the flood of startups trying to follow in the footsteps of Tesla ( TSLA) as a pure-play electric vehicle manufacturer.
The first is that unlike rivals like Lucid, Fisker, or Faraday Future ( FFIE), Polestar isn't pre-revenue. The company certainly isn't profitable or even truly established. But according to the merger presentation, Polestar delivered 10,000 vehicles in 2020. Three quarters into 2021, the company is estimating 29,000 unit sales and $1.6 billion in revenue this year. There's already a business here, even if that business at the moment has some work to do: Polestar projects operating margins worse than -60% in 2021.
The second way in which Polestar differs from most passenger EV plays is that the company already has a global footprint established. This in large part is due to its relationships with China's Geely Auto ( OTCPK:GELYF) ( OTCPK:GELYY) and Geely's Volvo Cars subsidiary. Polestar vehicles will be manufactured at existing Geely/Volvo facilities in China and worldwide. The Polestar 3, a premium sport-utility vehicle launching next year, will have some of its production located in Charleston, South Carolina.
That manufacturing reach has allowed Polestar to move into new markets: 10 so far, with four more coming by the end of the year. Those markets are being served now by the Polestar 1 high-end sports car as well as the Polestar 2 five-door hatchback. As the Polestar 3 (due next year) is joined by the 4 (an SUV coupe) in 2023 and the 5 (a premium coupe, to be launched the following year), the company aims to be in more than 30 markets with over 150 sales locations.
In the merger presentation, Polestar projects that strategy will underpin impressive growth. By 2025, the company aims to reach $17.8 billion in revenue, $1.6 billion in operating income, and $1.3 billion in free cash flow. Obviously, SPAC projections need to be taken with an entire shaker of salt, as many investors have painfully learned this year, but it does seem a bit easier to believe the company can generate solid growth from an existing base of some revenue as opposed to zero sales at all.
Still, it bears repeating: investors must be skeptical toward SPAC projections. That's doubly true in the electric vehicle space. The sheer number of startups, not to mention the flood of investment from legacy ICE (internal combustion engine) manufacturers, is going to create intense competition.
Yes, the market is going to grow; yes, subsidies are likely to help; and yes, many customers are going to switch to EVs from ICE models for reasons ranging from reliability to total cost of ownership to environmental considerations. But the market can only grow so fast, and the simple fact is that there are going to be passenger EV companies that fail.
The good news for GGPI stock is that relatively speaking Polestar seems far less likely than peers to be one of those companies. The fact that the company is moving close to 30,000 units this year itself is a good sign. The outsourced manufacturing with Geely and Volvo also limits capital needs. Between the SPAC contribution of $800 million and $250 million in PIPE (private investment in public equity), Polestar is only raising $1.05 billion in the SPAC merger. Lucid raised more than four times as much and probably will need more down the line.
The relationship with Volvo, which is contributing a good number of components, probably bodes well for reliability as well, though as one outlet noted Volvo's reputation on that front may be somewhat overstated at this point. Finally, the existing Geely/Volvo footprint is allowing Polestar to get out in the market relatively quickly. Current plans suggest that three years from now the company should have five different models on the market. There won't be too many EV rivals that can say the same, providing a potential competitive advantage.
Indeed, in the merger presentation and on the announcement call, executives emphasized that there are only two pure-play EV plays with global reach: Polestar and Tesla. NIO ( NIO) and XPeng ( XPEV) for now are regional; Lucid will begin that way as well. Yet Polestar, at least from a market cap perspective, receives a far lower valuation than any of those peers:
Market Caps of Major EV Stocks As of Oct. 1, 2021
* - pro forma for merger with Gores Guggenheim
|Company||Market Cap ($B)|
What Goes Wrong for PolestarIt's a good story. It's not a perfect one.
There are the obvious risks. The manufacturing partnership and existing revenue both provide advantages going forward — but neither guarantees success. Again, competitors will be pushing hard in every single market Polestar serves. Many things can go wrong: a massive recall, battery/range problems, or simply a launch (notably the Polestar 4, which is supposed to be a volume play) that receives a soft reception. Polestar still expects to burn over $1 billion in 2022 before getting free cash flow to breakeven by 2024; push targets out a few years and the natural de-leverage in the model can at the least require significant dilution along the way.
And while $21 billion seems reasonable on a relative basis, particularly against Lucid at ~$40B, it's far from cheap on an absolute basis. If Polestar winds up being a relatively niche player, there's not necessarily much upside here — certainly, likely not enough to outpace the market.
One real concern is that, at least for now, this does seem like it's set to be a niche business. While Lucid is following Tesla's strategy of starting at the high end and working down to a mass-market sedan, Polestar is keeping its focus on the luxury EV market.
That will be a big market, certainly:
Slide from GGPI/Polestar presentation
source: Polestar/Gores Guggenheim merger presentation
But it may not be big enough to spark the upside that TSLA stock has generated over time, or that bulls see in LCID. At the least, it hasn't been enough to spark much optimism.
On this front, the market isn't the only concern. The manufacturing agreement with Geely does limit cash burn and provide a faster path to market — but it also depresses long-term margins. Gross margins are targeted to just 22% in 2025; Tesla hit 27% in the first half of this year.
Polestar is targeting a 9% operating margin by 2025, and said in a "Funding Announcement Q&A" it had an "aspiration" to move that figure higher from that point. But the combination of lower operating margins and a smaller addressable market limits the explosive upside of Lucid, in particular, even if the downside in what will be PSNY stock likely will be lower. For Fisker and Faraday (with market caps of $4.3 billion and $2.8 billion, respectively), lower valuations mean being a niche manufacturer still is enough for potentially significant long-term upside.
Reviews for the Polestar 2 lend a similar sense. Motor Trend said the dual-motor 2 was " a little disappointing." It was more constructive toward the single-motor model, but seemed to still measure it a bit short of the Model 3. The UK's CarWow gave the 2 an 8 out of 10, while similarly giving it a modestly negative comparison to the Model 3. TopGear assigned an 8.5/10 rating.
There's certainly a sense across the board that both Polestar vehicles and GGPI/Polestar stock are solid — but not quite spectacular.
The Case for GGPI Stock
To be fair, all of this analysis is speculative. Pegging the exact fair value of the Polestar business is nearly impossible at this stage. The range of scenarios is enormously wide.
There is a 'feel' aspect to valuing GGPI. And there likely will be a 'feel' aspect to trading GGPI. One interesting aspect of the merger is just how small the effective float will be until the merger, and likely after:
Polestar ownership pro forma for Gores Guggenheim SPAC merger
Polestar Investor Relations
Given lockups that extend 180 days after the merger close (which isn't expected until the first half of 2022), the thin float could drive a good deal of volatility here. The thin slice of ownership available to public investors seems like it could cause some upside pressure (and potentially squeeze any traders who look to short GGPI), but conversely some investors might project post-close selling pressure ahead of lockup expirations. We've seen a number of SPACs simply fall off the table after merger close (often after a strange rally once the deal goes through), and Polestar isn't guaranteed to be an exception to that trend.
Add the short-term and long-term considerations, and it is difficult to pound the table for GGPI stock as a compelling buy. But at the same time, it's not terribly difficult to have at least some optimism toward Polestar. This does seem like a company that is going to be a part of the EV manufacturing landscape for some time to come. How big a part investors expect it to play in the future should inform what investors think of Gores Guggenheim stock in the present.
Gores Guggenheim (GGPI): Polestar Merger Should Entice EV Bulls | Seeking Alpha
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|From: roto||10/22/2021 7:18:41 PM|
|CATL’s EV battery breakthrough holds promise as cost-effective, game-changing alternative the industry’s waiting for |
*CATL makes rapid progress on sodium-ion batteries, improving the performance of the alternative technology to the mainstay lithium-ion batteries
*The commercialisation of sodium-ion batteries is still some time away, as it will take time to fine-tune products that are a viable option to lithium-ion,
The first of a three-part series on battery packs looks at the world’s largest producer CATL and how it occupies the apex of a technological revolution
to assemble cheaper and more durable cells to power electric cars.
Ningde in southeastern China’s Fujian province, known primarily for its tea plantations, seldom rolls off the tongue in automotive circles or the technology
But on a rainy Friday in late May, the city of fewer than 3 million people was the epicentre of a major technological breakthrough, one that could shake
up the world’s supply of battery packs, giving China the technological and competitive edge in providing cheap and durable power source for driving electric
Robin Zeng Yuqun, the founder and chairman of Contemporary Amperex Technology (CATL), revealed that the world’s largest producer of EV battery packs –
with customers from BMW to Tesla – was making progress with sodium-ion batteries. Two months later, CATL unveiled its first generation of sodium-ion
batteries, and came up with a solution to mix its mainstay lithium-ion packs with the alternative technology into new packs to optimise performance.
“Some people [said] it would be hard to make breakthroughs in the chemistry of batteries, and that improvements can only be made in their
physical structures,” Zeng told 170 of CATL’s biggest shareholders, including China Merchants Bank and Hillhouse Capital, during the company’s
annual general meeting. “By using a high-throughput calculation platform and simulation technology … [we] continuously evolved and enabled sodium-ion
batteries to enter the fast track to industrialisation.”
Zeng’s announcement was music to the ears of not only CATL investors, whose value has topped 1.2 trillion yuan (US$189 billion) with a 41 per cent
jump in its stock price this year, but also makers of EVs, or new-energy vehicles (NEVs) as they are called in China.
Most NEV batteries – from the ones assembled by CATL to packs produced by Panasonic and Samsung – rely on lithium and cobalt as the key raw material,
both of which are concentrated in a small number of nations.
The world’s reserves of lithium stood at 21 million tonnes in 2020, of which 44 per cent was in Chile, 22 per cent in Australia, 9 per cent in Argentina and 7 per cent
in China, according to the US Geological Survey. Australia, meanwhile, accounted for nearly half of the production, while China – the world’s largest NEV
market – imported some 80 per cent of the industry’s needs.
Amid surging demand for battery packs, led by the popularity and surging production of EVs, the world’s supply of lithium is heading for a “serious supply
deficit” by 2027, which could hamper the production of an estimated 3.3 million NEVs that year, according to a forecast by the energy research firm Rystad Energy.
Cobalt’s global reserves stand at 7.1 million tonnes, half of which was in the Democratic Republic of Congo, which also accounted for 68 per cent of worldwide output.
By contrast, sodium is readily found and is virtually inexhaustible.
Global EV sales reached 3.1 million units last year, an increase of 30 per cent from 2019, according to Fitch Ratings. They are expected to make up 45 per cent of
the global car market by 2040 compared to 4 per cent last year, the rating agency predicted.
As EVs gain popularity alongside a drive to replace fossil fuel with renewable energy in generating grid-delivered electricity amid a global decarbonisation
campaign to fight climate change, demand for battery metals will keep rising.
The commodities market has already priced in lithium’s expected tightening of supply. The prices of battery-grade lithium hydroxide and lithium carbonate have
both more than tripled in the past year to over 160,000 yuan (US$24,850) a tonne.
Facing looming shortages, global carmakers and battery producers have been seeking alternatives to the dominant lithium-ion batteries.
Besides sodium-ion, another emerging technology is solid-state batteries, which use solid electrolytes unlike liquid lithium-ion batteries. While both offer
greater safety than lithium-ion batteries, which are susceptible to catching fire at high temperatures, costs remain a barrier to the commercialisation of
solid-state batteries, with experts saying mass production is a few years away.
Sodium-ion batteries also have the added advantage of fast charging and higher performance under low temperatures compared to lithium-ion ones.
CATL claimed its first-generation sodium battery can be recharged to 80 per cent of capacity in 15 minutes at room temperature. At minus 20 degrees Celsius,
it loses less than 10 per cent of the energy after it is fully charged, according to the company.
The next-generation product’s energy storage
density is expected to exceed 200 Watt-hours per kg, up from 160Wh of the first-generation prototype, Zeng said. Watt-hours are used as a measure
of power output.
This range is comparable to those achieved by lithium iron phosphate (LFP) batteries, one of two main types of lithium-ion batteries. NCM, the other
product that uses nickel, manganese and cobalt in different ratios, has a higher capacity ranging from 240Wh to 350Wh per kg.
Tesla cars, which use LFP and NCA (nickel cobalt aluminium) batteries, can be charged in 15 minutes at certain fast-charging stations giving them a
200-mile (320km) range, but normal charging gives only 44 miles of range per hour charged.
CATL said it plans to have a “ basic industrial chain” set up by 2023, and is inviting suppliers, customers and research institutions to “jointly accelerate
the promotion and development” of sodium batteries. Although it has not given any cost estimate, CATL said in August that it planned to raise 58.2 billion
yuan through a private share placement to finance the construction of new battery plants.
The company, however, is likely to benefit from some government support, although details are lacking. The Ministry of Industry and Information Technology
said in late August that it will provide policy support to help quicken their commercialisation, as part of overall efforts to help the nation achieve its twin
goal of peak carbon dioxide emissions before 2030 and net zero emissions by 2060.
Sodium-ion is also one of the novel battery technologies earmarked for support by the National Development and Reform Commission, China’s
top economic planning agency. Faster development of energy storage is part of the nation’s strategy to both enhance energy security and achieve
Still, analysts said it will take years to commercialise sodium-ion batteries, while potential customers wait for more progress and details.
“Large scale adoption of sodium-ion batteries commercially is highly unlikely within the next two to three years,” said Dennis Ip, head of utilities and
renewables research at Daiwa Capital Markets. “We see the development of sodium-ion batteries as more of a hedge against potential lithium shortages
or cost hikes.”
To be sure, even if sodium-ion technology promises cheaper batteries in the future, their performance and mass market launch timing, remain unknown.
Their lower energy-storage capacity could also require other battery components to achieve the same power performance, adding to the costs.
“We are still unclear when this technology can bring tangible impact on costs, efficiency, energy density and safety,” said Brian Gu, vice-chairman of
Guangzhou-based EV maker Xpeng Motors. “We, as a downstream adopter of battery technology, are closely monitoring its development …
it is still early days.”
While these factors will be mitigated eventually by cost savings as production scale is ramped up, analysts have cast doubts on the suitability of
sodium-ion batteries for EVs.
“Their low energy density – even when combined with some lithium-ion battery cells – raises concerns over driving range and hence appropriateness
for certain markets,” said David Merriman, manager of battery and EV materials at Roskill.
One thing going for sodium-ion batteries is that will definitely be less sensitive to the rising metal costs – a major concern for lithium battery makers –
because of sodium’s widespread availability.
If the price of each of the key battery materials rises by 10 per cent, the material costs of sodium-ion batteries only increase by 0.8 per cent, much
lower than the 3.2 per cent for LFP batteries and 4.6 per cent for NCM batteries, analysts Le Xu and Max Reid at Roskill’s parent Wood Mackenzie,
wrote in a blog last month.
They see sodium-ion batteries as a niche product, chipping away at some of LFP batteries’ share in the EV and energy-storage systems markets
and reaching 20 gigawatt-hour in sales by 2030.
Founder Securities’ analysts have a rosier outlook, predicting 33GWh of sodium-ion batteries to be deployed in minicars and 205GWh in
energy-storage systems by 2025.
Those predictions are in sharp contrast to the burgeoning global lithium-ion battery production capacity, which may double to 1,447GWh by 2025
from 706GWh this year, according to S&P Global Market Intelligence.
CATL originally started out as a licensed manufacturer in 2011, before developing its own technology. Riding on the global NEV boom, CATL quickly
expanded production from Fujian to four other Chinese provinces – Qinghai, Sichuan, Guangdong and Jiangsu. It started production at its first overseas
plant in Germany this year, and five years earlier opened a research centre in Munich.
CATL is not the only company exploring sodium-ion technology in China. In 2017, HiNa Battery Technology, a spin-off of the Chinese Academy of Sciences’
Institute of Physics, became the first Chinese firm to look into the technology.
Jiangsu-based HiNa demonstrated its maiden product in a low-speed mini electric car in 2018. It aims to develop a more competitive alternative to the
pollution-causing lead-acid battery used in 90 per cent of such vehicles used mostly in rural areas.
The battery’s energy density reached 145Wh per kg, over five times that of lead-acid batteries.
Sheffield, Britain-based Faradion – set up a decade ago – was the world’s first company dedicated to sodium-ion batteries development, according
to a Founder Securities report.
It is demonstrating the use of sodium-ion batteries in low-cost transport such as electric bikes and scooters.
A year ago, California-based start-up Natron Energy launched a pizza-box sized battery pack for use in data centres and telecoms firms, but they are
yet to commercialise a product for EVs.
It will take several years for sodium-ion batteries to be designed, tested and approved by end users into commercial-scale products, Roskill’s Merriman
“Whether sodium-ion technologies will be viable alternatives in an increasingly competitive electric vehicles market, displacing lithium-ion and potentially
solid-state technologies [in] mass-produced vehicles is unclear,” he said.
“Li-ion [will] remain the dominant technology in EVs through to the end of the decade.”
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|To: roto who wrote (645)||10/22/2021 7:58:49 PM|
|Exclusive-Apple's talks with Chinese battery makers CATL and BYD mostly stalled -sources|
SHANGHAI/HONG KONG (Reuters) -
Apple Inc's talks with China's CATL and BYD over battery supplies for its planned electric vehicle have been mostly stalled after they refused to set up
teams and build U.S. plants that would solely cater to the tech giant, three people with knowledge of the discussions said.
The firms informed Apple sometime in the past two months that they were not able to meet its requirements, the people said. But the U.S. company
has not given up hope of resuming talks with either CATL or BYD, according to one source.
Chinese battery makers are more advanced than rivals in the development of lithium iron phosphate (LFP) batteries which are cheaper to produce and
sources have previously said Apple favours this battery technology.
CATL, the world's No.1 maker of batteries for EVs, has been reluctant to build a U.S. factory due to political tensions between Washington and Beijing as
well as cost concerns, said one of the people with direct knowledge of the talks.
The Chinese firm has also found it impossible to set up a separate product development team exclusively working with Apple due to difficulties in finding
sufficient personnel, the person added.
BYD, which has an iron-phosphate battery plant in Lancaster, California, declined to build a new factory and team that would solely focus on supplying Apple,
said two of the sources.
The stalled discussions have meant that Apple has been considering Japanese battery makers and it sent a group of people to Japan this month, they added.
Panasonic Corp is one of the companies that Apple is considering, said one of the people.
The sources declined to be identified as the talks were confidential. Apple, BYD and Panasonic declined to comment.
CATL said in a statement to Reuters that it denied "the relevant information".
"We are evaluating the opportunity and possibility of manufacture localization in North America," the statement said, adding that it has a dedicated
professional team exclusively for each customer.
Sources told Reuters last year Apple was aiming to launch an electric car by 2024 Apple has not publicly disclosed its plans.
The stall in discussions comes at a time when U.S. President Joe Biden is seeking to make the United States a powerhouse in electric cars, setting a goal
of having half of all new vehicles sold in 2030 electric. Any delays in securing battery supplies could further impede EV development for Apple which last
month lost the head of its car project, Doug Field, after he decided to return to Ford Motor Co.
Tesla Inc, which has been making some of its Model 3 and Model Y cars in China with LFP batteries from CATL, said this week it intended to use that
battery chemistry outside China as well.
CATL and BYD use a type of battery pack technology to improve the performance of LFP batteries. Without that, LFP batteries usually offer much shorter
driving ranges and lower energy density than the more expensive lithium batteries that use cobalt and nickel.
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|To: roto who wrote (650)||10/25/2021 1:29:28 PM|
|TSLA ... Love it, own it, hate it / don't own it / short it or trade it. Fact is, it's the undisputed leader and will remain just that for some time.|
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