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So many SPACs, so many disasters.
This is an old story. At least as old as 1720.
In 1845 Thomas Mackay wrote Extraordinary Popular Delusions and The Madness Of Crowds . This is the actual text he recorded of a public offering in 1720. The only description of the company's activities, balance sheet and prospects were included in the listing sheet as:
"A company to run a business with great benefit, but no one can know what it is."
This was the stock offer in what was called the "South Sea Bubble". Do you think that's ancient history? Not quite. "Blind pools" are still with us today. At manic market tops, I've seen some of these little rascals – and saw thousands of people lining up to offer their hard-earned cash. Here's one from the 80's:
"This offering is in securities of a start-up company with no operational history and no plan of action; the company will not conduct business until after the completion of this offering … The company does not know which business it will participate in and has no plan of approach. "
Most of these deals enrich the big money that is the fact and hype of a company they typically merge with to create a public listing. They can easily incorporate their own company with a private company prior to the merger as their public offering is nothing but a variation of the above two quotes. They are basically telling the SEC "we have no income, no income, and no business plan." The SEC does not need to "review" anything so that they can be easily disclosed. Only then will they start looking for a (hopefully robust) merger partner. The SEC usually gives them 2 years to do this without penalty.
In their latest incarnation, these companies are on the hunt for a merger partner S pecial P urpose A acquisitions C ompanies, or SPACs. I've learned the hard way it can pay off to buy SPACs at their original listing price, before they find a merger partner, or after they announce their intended quarry and investors switch to another hot ticket item.
If their price returns all the way to or below the original offer, and if the intended spouse seems interesting, I'll take the flyer. One such company is the SPAC Forum III (NASDAQ :), which is merging with the pedestrian-sounding Electric Last Mile Solutions company – ELMS. ELMS is creating a niche in the local delivery market by producing EV Class 1 vans at an existing Indiana auto plant converted for EV production.
I am interested in this SPAC (after buying way too early the first time) for two reasons: (1) after hitting a speculative high of $ 15.30, it has reverted to a price of $ 9 .95, with the "Units" at $ 10.35 (FIIIU, consisting of one share and one warrant) only 50 cents off the initial offering price. And (2) I believe it has a first mover advantage in its niche market of smaller delivery / freight / commercial vehicles for an urban environment. The company's direct competition is vans such as the Ford (NYSE 🙂 Transit Connect.
There are many other companies vying for the supremacy of electric vehicles in the delivery and freight sector. ELMS specializes in the "Class 1", the less than 6000lb category. Names like Arrival, Rivian and Workhorse are often mentioned in this field, but they only offer the larger Class 2 (6000-9000 pounds) and Class 3 (10,000-14,000 pounds) vehicles.
The only EV competitor in the more maneuverable in tight city streets Class 1 arena is one Canoo model (NASDAQ 🙂 and production is not expected to begin until 2023. So competition from ELMS in the short term is more expensive. -to serve internal combustion vehicles currently owning the market for Class 1 vehicles.
On the other hand, ELMS production is planned in the US by the 4th quarter of 2021. I say "in the US" because they will produce EV van platforms made by Chinese car, engine and components. maker Chongqing Sokon Industry Group (SS 🙂 in China. Sokon has sold more than 30,000 of these EV vans in Asia, showing that they have been used in the field.
Less Moving Parts
A benefit of EVs, especially for big fleet buyers like Amazon (NASDAQ :), Best Buy's (NYSE 🙂 Geek Squad, Walmart (NYSE 🙂 and any other big outfit with lots of deliveries is that there are far fewer moving parts on an electric vehicle, thus lower operating costs. There is also the reliability of the fuel advantage: electricity prices can fluctuate, but not nearly as much as gasoline prices.
Between lower running costs, lower fuel costs and the sweet (currently) $ 7,500 tax credit for buyers, ELMS vans are comparable to today's internal combustion engine (ICE) vans to buy – then much lower running costs starting on Day 1 With less weight and space taken up by the engine, ELMS 'Urban Delivery offering also gives the owner 40 cubic feet more cargo space than current ICE leaders like Ford.
Another & # 39; moving part & # 39; that may force current ICE leaders to charge more is the cost of getting their product to the US. Ford's main plant for the supply of ICE vehicles is located in Spain, Nissan (OTC 🙂 is located in Mexico, and the Dodge (NYSE 🙂 car is being built in Turkey. ELMS was able to convert the former Hummer plant in Mishawaka, Indiana into an assembly line for their EVs.
Finally, in terms of "moving," I hear back to the fact that ELMS will probably enjoy at least a full year of no competition in this niche market for the very popular Class 1 vehicle. If their product is sound quality and resonates with buyers, this first mover advantage will prove to be a significant competitive advantage.
How do we value a business without sales?
We need a little wind catch from Kentucky. If we find out that ELMS will only get 3% of the market in the first year 2022, and ICE vehicles the other 97%, but then grow to 5% of the market by 2023 when their first EV competitor will get it & # 39; says & # 39 ;. expects "to start production, then grow to 7-10% of the market in the next year, plus, we're looking at 30,000 to 40,000 electric vehicles sold by 2023, growing to a staggering 90,000 to 110,000 by 2025-" 2026. On those two points, not that far off, we could reasonably expect to see $ 1 billion in sales in 2023 and $ 2 billion + in the years to come.
I have tried to present a middle ground perspective here. Again, ELMS is currently a pre-income, pre-earnings company. There is no guarantee that ELMS will perform in such a way as to achieve the above reasonable projections. Of course, if the political winds continue in the same direction and only increase slightly in the future, further subsidies could make my numbers over too conservative. Time will tell.
I believe the current cuts under all SPACulative EV offerings provide a good opportunity to source from EV manufacturers, battery manufacturers and the miners who mine and process the essential metals that will cause the EV revolution. I've written about this and elsewhere. Among them, I rank Electric Last Mile as one of the best of the hundreds of SPACs out there to reward me with good execution and a rising stock price.
