Electric Last Mile Solutions (FIII) – An Undervalued Electric Vehicle SPAC

Dec. 27, 2020 10:31 am PT

Summary

Electric Last Mile Solutions, set to merge with SPAC Forum Merger III Corp (FIII), is the most compelling Electric Vehicle (EV) investment opportunity in the market right now;

Electric Last Mile Solutions (ELMS) will use an 675,000 square foot manufacturing plant in Indiana that formerly produced Hummers to build  their commercial delivery and utility EVs.

They have a production-ready vehicle, with 30,000 of them already on the road globally.

ELMS also has 30,000 pre-orders in hand from some of the largest companies in the U.S., lining up for ELMS’ U.S. made all-electric urban delivery vehicle that can be purchased for the same price as the current gas-powered leader, with a total cost of ownership that is 35% LESS.

ELMS will be first-to-market in the U.S. with a Class 1 delivery EV, just as  explosive demand for EVs is predicted in the commercial last-mile delivery space that ELMS is targeting.

Introduction

Anybody paying attention to SPACs and electric vehicles in the last year will tell you that finding an undervalued stock in this space is near impossible. The opposite is more true, with multi-billion dollar valuations attached to hardly more than a sketch on a napkin.

When I researched Forum Merger III Corp (FIII), which is the SPAC entity that plans to combine with electric delivery vehicle-maker Electric Last Mile Solutions (ELMS), I thought I’d discovered the illusive treasure at the bottom of the Oak Island money pit.

I believe now is the time to buy this stock, when the Market’s attentions aren’t quite focused on it, because ELMS checks all the boxes to be one of the best investments for the coming year, and I’ll explain why below.

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Source: electriclastmile.com

Finding a Long-Term Trend

I like to try to forecast the large trends in the market, confirmed by superior public-company performers in that space, and then look for undiscovered companies in the same market vertical. Preferably something with a bit of complexity or something beaten-up a bit and ripe for a turnaround. My fortuitous selection of Nautilus (NLS) at $1.66 per share in March 2020 fits the model. My article highlighting NLS on Seeking Alpha on March 25, 2020 is here. I had long-thought that digital connectivity was going to revolutionize home exercise, and this trend was picking up steam already with the market leader Peloton (PTON). Back in March 2020, I saw that the Coronavirus-related stay-at-home orders were heavily impacting the ability to exercise, and found that tiny (at the time) NLS, engaged in a nascent turnaround at the same time, looked like it was going to experience a flood of new business. NLS hit a high of $27.80 before coming back a bit, and is an amazing performer and still a great value at about $20 per share.

In keeping with this process of trying to invest in long-term trends, I have been researching the electric vehicle market for the past year, investing in certain EV companies and looking for areas of this market with the best prospects of a solid return and the least comparative risk. I like to find market niches, though with a sector so massive, the word “niche” doesn’t sound quite right.

The overarching trend is the global move away from fossil fuel use in transportation. While this trend is in its infancy, with less than a couple percent of consumer vehicles in the U.S. being electric, there has been a massive and undeniable shift in the market. Much of this shift is in attitudes about the urgency of the need reverse global warming, though pure and simple cost comparisons are having an incredible effect as well. Basic economics is what is going to lead to the EV takeover of transportation. Now that it’s possible to purchase an electric vehicle with suitable range at a comparable price to its fossil-fuel equivalent, yet spend 30-50% LESS on the maintenance and operation of that vehicle and incur lower overall total cost of ownership (TCO), making the purchase decision is the definition of a no-brainer.

EV Benefits:

  • Fewer moving parts – less to break
  • Lower cost of power (EVs can get at least 2x more MPG equivalent (MPGe) than fossil fuel vehicles)
  • Less regular maintenance
  • Higher torque
  • No fossil fuel combustion, meaning a reduction in greenhouse gasses, and  no air pollution from fumes and particulates
  • Less noise pollution

The shift in attitudes about EVs for economic reasons alone (lower TCO while having a comparable purchase price) would likely be enough to see the EV revolution continuing apace. Add to this the global support, such as China and the U.S. providing subsidies for the purchase of EVs. It is also widely believed that the incoming Biden Administration will be very supportive of EVs. On top of this, governments worldwide and even U.S. states are mandating gasoline vehicle sales phase-outs. California, the most populous U.S. state by far (with more than 39 million people) plans to ban sales of new gasoline powered passenger cars and trucks by 2035. While this may seem shocking to some right now, I think the economics of the EV revolution will make this goal easy to meet in 15 years. I think EVs will sweep the world at such a fast pace that consumer demand for new EV cars will be close to 100% in 10 years or less.

Source: Author meme

In 2035, nobody will want to buy a new gasoline-powered car. Note: I’m a “car guy”, and I’ve always been amazed at the intricacy and mechanical genius of the internal combustion engine. That said, there’s a better method of propulsion than fossil fuels. That doesn’t mean that design goes away too. Some of the new EVs are beautiful, and take their inspiration from the great Italian designs from the sixties, with a bit more aerodynamics added in. Some don’t (I’m looking at you, Cybertruck).

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Source: Reddit

Finding a Solid Candidate to Invest in and Ride the Trend

The flag bearer for EVs the past many years has of course been Tesla (TSLA). While I’ve always liked the cars, I just couldn’t buy the stock because I always considered it overvalued. That type of investment is just not for me, though more power to those that are comfortable with putting their money into a TSLA or other companies with popular products yet nosebleed valuations. I’m well aware that anybody who has bought and held TSLA up until now is making money.

No doubt partly from seeing Tesla’s success, all of the big automakers have gotten into the fray, some like Volvo announcing an all-EV lineup. General Motors (GM) has invested heavily in EVs, and claims that they will have up to 30 EV models across its various brands within the next few years. Mercedes, Jaguar, BMW, Audi, and even Porsche all have luxury EV offerings available right now, hoping to compete with Tesla. The large manufacturers are seeing  the market shift and want to be positioned for it.

The consumer market is not the only place where the EV shift is taking place. Commercial vehicles, from urban utility transport to long-haul semis are being built or at least retrofitted.

Some of the SPACs to choose from recently:

Nikola (NASDAQ:NKLA), Fisker (NYSE:FSR), Lordstown Motors (NASDAQ:RIDE), Hyliion Holdings (NYSE:HYLN), Canoo (GOEV), XL Fleet (XL), Arrival through CIIG Merger Corp. (NASDAQ:CIIC), Lion Electric through Northern Genesis Acquisition (NGA), and Lightning eMotors through GigCapital3, Inc. (GIK).

I don’t mean to single out EV SPACs for attention in this article. I’m mainly highlighting them for two reasons: 1) they are good comparisons to ELMS as they are in the same general space, and 2) they are each largely pure-plays on the EV sector. 

If SPACs were as favored when 3-D printing stocks were red-hot, I’m sure we’d be seeing a dozen 3-D printing stock SPACs.

Here are a few Chinese companies making EVs: Chinese automakers Nio (NYSE:NIO), Li Auto (NASDAQ:LI), and XPeng Motors (NYSE:XPEV).

First a brief description of the SPAC transaction that will bring ELMS public. Forum Merger III Corp. (FIII) is the Special Purpose Acquisition Company that has raised $250 and holds it in trust until the merger is voted on by shareholders. A PIPE concurrent with the deals closing will bring in another $155 Million, including money from BNP Paribas and Jennison Associates, LLC. The largest shareholders and contributors of the assets that will go into ELMS are: 1. Shanghai-exchange listed Sokon, maker of the EC35 EV utility van that is essentially the ELMS EV that will now be manufactured in Indiana by ELMS; 2) SF Motors aka Seres, a Silicon-Valley based company which purchased the Indiana factory for its electric SUV, but now will contribute the use of the factory to ELMS. Seres, a subsidiary of Sokon, is also contributing personnel, patents, and fleet management software for tracking, route planning and communication. Interestingly, Martin Eberhard, co-founder of Tesla (TSLA), sold a battery start-up to Seres in 2017, and was for a time the Chief Strategy Officer of Seres.

The FIII SPAC was formed by experienced financiers with a solid track record of post-merger performance. Their most recent SPAC deal was a merger of plant-based food company Tattooed Chef (TTCF) into Forum Merger II Corporation. TTCF currently trades at about $25 per share, about 2.5x the initial pricing.

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Source: ELMS Investor Presentation

In this market where EV companies seem to be growing like weeds, how does an investor choose what horse(s) to ride? I’ll outline my formula, and then go point-by-point to show why I think ELMS is the best investment.

EV Investment Checklist

  1. Machine (Do they have a finished vehicle?)
  2. Manufacturing (Physical Infrastructure)
  3. Money
  4. Management
  5. Market (Pre-Orders, Market Demand)
  6. Valuation Relative to others

I call this list the 5MV approach. (Would have been 6M but what’s an M-word for Valuation?) I’ll go through them one-by-one.

 READ MORE OF THIS ARTICLE ON SEEKING ALPHA HERE

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