Whenever a new EV stock makes its debut, you have to ask - is there any bite behind this bark? We're asking that question today as Microvast approaches a SPAC merger with Tuscan Holdings (NYSE: THCB).
The global electric vehicle market is expected to be worth $802 billion by 2027, according to Allied Market Research. From 2019's $162 billion, that's 395%.
If Microvast stock is a part of that, then it's worth considering. But here is something you want to keep in mind when looking at EV stocks to buy.
While techies drool over artistic renderings of cars that don't exist yet, more thrifty stock traders are looking deeper into this sector.
Many EV stocks have shined on the coattails of a five-quarters-profitable Tesla Inc. (NASDAQ: TSLA). And 3D models of future releases from Nikola and Rivian fueled the frenzy even more.
There is still so much hype in the EV industry, investors who went "all in" on EVs are starting to see some reversals today.
The movie "Raiders of the Lost Ark" comes to mind: that scene where anyone who merely glances at an ancient relic has their face melted off. This has been the story of some EV stocks in 2020. They're super-alluring; even if you hear an analyst dog the stock, something keeps you hopeful.
People see what Tesla Inc. (NASDAQ: TSLA) and Workhorse Group Inc. (NASDAQ: WKHS) did, so they buy a Nikola Corp. (NASDAQ: NKLA) or a Hyliion Holdings Corp. (NASDAQ: HYLN).
Both Nikola and Hyliion have lost more than half their value since going public this year.
That's not to say they don't have a chance. It's just important to keep your wits in an emerging, unpredictable sector like this.
One way to do that is to look at EV components in greater detail, not just the shiny cars.
We're talking about the companies that supply the EV companies. Microvast is one of those "under the hood" firms.
And it is supplying vehicles that exist already. Imagine that!
Let's learn a bit more about Microvast, and then we'll judge whether it's a buy or not leading up to the SPAC merger.
What Is Microvast?
Microvast is an electric vehicle battery company based in Stafford, Texas. Founded in 2006, it also has operations in Delaware, England, and China, with other partners around the world.
Even if some 2020 EV stocks weren't all they were cooked up to be, the overall surge in the EV market benefits stocks like Microvast in the long term.
We recently wrote about how Tesla's success will propel larger carmakers like Toyota Motor Corp. (NASDAQ: TM) into the market starting in 2021.
It's the same for EV component manufacturers. Media attention and stock growth reveals demand for electric-powered vehicles in various markets, spurring the production of EV components in turn.
However, the fact that Microvast produces components is far from the biggest reason to buy.
What separates Microvast even more from the pack is that this company is already getting business. That's something Nikola and friends couldn't say for themselves.
We highlighted Lion Electric stock for this reason a few weeks ago. The company provides electric school buses in Canada and several U.S. states.
Having sales is a huge leg up for these companies. It's one reason Microvast stands out as well. In fact, the picture is arguably brighter than Lion's, since Microvast appears to have dug its feet into EV markets on a larger scale.
Microvast's batteries have supplied a range of "e-buses, vans, trucks, passenger vehicles, automated guided vehicles, forklifts, and mining trucks," according to a Tuscan press release.
The company has already installed batteries in 28,000 vehicles globally.
It even supplied buses at the 2018 Seoul Olympic games. Currently, electric buses in Shanghai, China, and Auckland, New Zealand, use them as well.
International exposure like this puts Microvast at the top tier of EV suppliers, which is probably what's attracted investors' interest lately...
Is Microvast Stock a Buy?
Tuscan Holdings is a special purpose acquisition company (SPAC) that was initially interested in buying cannabis startups. The rise in EV popularity has recently made it change course and seek to invest in Microvast.
This was a common story in 2020 as EVs took the spotlight. Several EV companies went public via SPAC merger instead of a traditional IPO.
SPACs - or "special purpose acquisition companies" were a go-to for companies with little faith in the struggling IPO market early in the year. Also known as "blank check companies," they're essentially pools of money waiting to buy the next big startup and take it public.
As a result, 2020 was called the "year of the SPAC" by some.
Different from a traditional IPO, there's a slightly better case for investing in a SPAC merger from the jump. SPACs are run by institutional investors who - ideally - have a pulse on the markets where they are investing. If you trust the SPAC's leadership, you may want to invest in their decisions.
But investing in EVs is not merely a trendy move by this SPAC. Tuscan's leadership is relatively familiar with the sector. Two acting senior advisors of the company have prior experience sponsoring automotive technology, so they will be able to guide the company through the process.
Given Microvast's exposure to the market, Tuscan seems to have made a viable decision - comparing the company to other EV stocks with so many unknowns looming.
The Tuscan IPO was $276 million. Combined with venture capital funds raised by Microvast, the companies together will be worth a combined $2 billion.
Additionally, Microvast expects $100 million in annual revenue for 2020.
Clearly, it already has the ball rolling, unlike so many other EV hopefuls out there.
It's still unsure when the companies will merge, but they confirmed signing a letter of intent back in November.
Beyond more detailed financial reports in the future, the only other thing to consider would be the broader market impact on the EV industry in 2021.
We're now looking forward to a COVID-19 vaccine next year. While it may still be a while before things go "back to normal," there is still upside potential in the broad market. Gains in the major indexes are a great sign for any stock making a debut.
The exact date of the Microvast merger has yet to be announced, along with the potential stock ticker. But the way SPACs work, you can buy shares of Tuscan, and they will convert to the new Microvast ticker whenever the merger happens.
Instead of falling for a flashy picture of EVs that don't exist yet, keep watching for the latest on this company and the broader EV industry in 2021.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.