There is a level of speculation to SPAC investing as the majority of these companies have little or no revenue. There is an obvious risk to speculating on young companies, which is that they will not be able to meet their future projections. This is precisely why we choose to allocate a small portion of our portfolio to SPACs, typically not more than 1-2% of our total portfolio in any one company. We are comfortable adding more to these positions as they grow and as the company begins to successfully execute on its goals. Until that point, it is important to recognize that we are making speculative investments and the stocks may be extremely volatile. Keep this in mind when sizing your own positions.
When evaluating SPACs, we prefer companies with the most upside potential in big, fast growing markets. Below are the companies we think have potential and fit our investment profile.
Lucid Motors (CCIV)
CCIV has fallen sharply since its merger confirmation with Lucid Motors and we took that opportunity to open a position. This is a company with enormous potential in the coming years. As of 2020, only 3% of global car sales were electric vehicles. The EV market is set up for exponential growth this decade and beyond as the world focuses on reducing carbon emissions.
I discussed why Lucid’s technology is a legitimate competitor to Tesla here. In Lucid’s Investor Deck, they are projecting 4% market share of the market by 2030. That number would put them as 8th on the current list of auto manufacturers. Lucid has been incorrectly characterized by some as a “Tesla Killer” or a company that must outperform Tesla to succeed. That could not be further from the truth as management is not predicting this nor modeling this.
Lucid has over 7,000 pre-orders for the Lucid Air Dream that is set to debut in the second half of 2021. The company has a working manufacturing facility in Arizona that can currently produce up to 34k units per year. The company is looking to scale that number to 365,000 annual units per year. They are currently working on building a manufacturing facility in China.
The Lucid Air Dream has been independently verified for each of its capabilities. Lucid has over 20M real-world vehicle miles driven. All OEM racing teams in the world’s premier EV racing series are powered by Lucid battery packs and software. In its investor presentation, Lucid talked about its plan to expand its technology supplier business beyond the EV racing series with potential applications in aircraft, eVTOL, military, heavy machinery, agriculture, and marine. Lucid has confirmed that 6 other car companies have contacted them about using their battery technology already.
The Lucid Air has 32 sensors including LIDAR to support Level 2 hands-free highway driving. The company’s goal is to reach Level 3 hands off and eyes-off capabilities within 3 years, which no automaker currently offers. Eugene Lee, the senior director of ADAS and autonomous driving at Lucid Motors, formerly worked on GM’s Super Cruise.
Lucid now has $4.5B in cash on its balance sheet, a number that Tesla did not accumulate until 2019. Tesla had $106M of cash on it balance sheet when it first IPOed. Fisker, another EV company that has not yet delivered any cars, has $400M of cash on its balance sheet. Lucid is also backed by Saudi Arabia’s Public Investment Fund, the country’s premier investing institution. With a strong balance sheet and heavy backers with lots of cash, Lucid is well positioned to overcome the challenges involved with mass producing cars.
Lucid management contains 8 former Tesla executives and 3 former Apple executives. Peter Rawlinson, Lucid’s CEO, was the former Chief Engineer of Tesla and helped design the original Tesla Model S. Rawlinson believes he’s taken it to a new level with the Lucid Air, beyond what he engineered with the Tesla Model S.
Lucid is projected to reach nearly $23B in revenue in 2026. If the company can reach this mark, it could reasonably trade at least 4x above its current ~$48B valuation.
Source: Lucid Investor Presentation
There are obvious hurdles for Lucid and risks involved with this investment. However, we are comfortable speculating on Lucid because of its world class technology, accomplished management team, outstanding balance sheet, and large backers.
Stem Energy (STPK)
I covered STPK in detail here. Stem has proven to be a volatile SPAC for us, but we remain bullish on the company’s long-term prospects. Stem currently has $200M of contracted backlog and over 100% of 2021 revenue locked in from contracts that have already been completed. There is potential for a big upside surprise on the $147M revenue target this year as the actual number should be closer to $200M. The company is projecting revenue to grow at an 81% CAGR through 2026.
Source: Stem Investor Presentation
Partnerships with Apple, Amazon, Google, Facebook, and Walmart represent a backlog of future business that will drive growth for years to come. Stem’s value is in reducing its client’s electric bills 10-30% without changing the way they operate. Stem’s product also helps its clients meet their corporate ESG targets, making them eligible for potential government subsidies.
Electricity production is the #2 polluter responsible for 27% of greenhouse gas emissions. Over 75 countries including the US have committed to net zero emissions by 2050. Stem management estimated that there is a projected $1.2T in new revenue opportunities for integrated storage that are expected to be deployed by 2050.
There remains a great deal of untapped potential for energy efficiency improvement through implementation of new technologies. Stem is ideally positioned to be an industry leader in the energy storage market as more companies follow the path that Apple and Amazon have already taken.
STPK also stands to benefit from increased investments in the ESG space. Money managers are facing greater pressure from investors, regulators, and activists to direct capital toward businesses that support a greener future. Assets that adhere to environmental, social, and governance criteria are projected to exceed $53T by 2025.
Proterra (ACTC)
I first covered Proterra here. Proterra continues to prove why they are the leading electric transit bus manufacturer in North America. This week, Proterra won a 16 year, $169M contract to lease 326 buses in Maryland’s Montgomery County. This contract is the largest municipal government deal of any kind for buses. The Washington DC suburb ultimately plans to replace its entire 1,422-bus fleet over the next two decades using Proterra’s electric battery technology.
It is only a matter of time until other municipalities and cities make the switch to electric transit buses. Proterra management estimates that its total addressable market in this industry exceeds $260B. Currently, the company has a market cap of under $5B despite being positioned as North America’s #1 electric transit bus OEM. Their buses have traveled 16M total miles, significantly leading all competitors. Proterra also has partnerships in place with BMW, Daimler, Con Edison, and most recently Komatsu to develop all electric construction equipment.
Proterra is projecting revenue to grow from $193M at the end of 2020 to $2.56B by the end of 2025.
Source: Proterra Investor Presentation
Eventually, every form of transportation will need to be electrified. Proterra has a commanding lead in North America’s electric transit bus industry and the inside track on future contracts. Jennifer Granholm, the United States Secretary of Energy, formerly held $1M in Proterra stock options and sat on the company’s board prior to being forced to shed any potentially conflicting investments.
Battery-electricity technology is the future of bus transportation. We are in the very beginning of a transition to zero-emission electric buses across the country. Proterra is the industry leader and proved it by winning the nation’s largest municipal government deal for buses. They are ideally positioned to win more contracts in the future as more cities transition to electric bus transportation.