July 14, 2021

Breakingviews: Car-battery SPAC deal is joyride at electric price

by Breakingviews.

SES Holdings founder and Chief Executive Qichao Hu has picked a mixed moment to list his Massachusetts Institute of Technology car battery spinoff. Shares in New York-listed rival QuantumScape have crashed 72% this year as market mania over electric vehicles hit the skids. Yet global automakers continue to accelerate away from gas-guzzlers and need ever-increasing amounts of oomph under the bonnet.

SES, which has two plants in the United States and China, uses lithium-based technology to make batteries that are lighter, cheaper and – crucially – cram in greater amounts of energy. Powered by one of his devices, Hu says a typical electric roadster might be able to go for 540 miles. And drivers can recharge 80% of the battery’s capacity in less than 15 minutes.

Such features are key to overcoming consumer fears about range and laborious charging times. Eliminate those, and the nine-year-old company could dominate a market it reckons will be worth $165 billion in 10 years. Its United Nations-like lineup of auto company investors, including America’s General Motors, South Korea’s Hyundai Motor and Kia, plus China’s Geely Holding Group and SAIC Motor, adds a few extra volts of trustworthiness.

Still, there may be bumps ahead. For one, Hu retains super-voting shares that let him control the company. Then there’s the potential for tensions between Washington and Beijing to mess up supply chains. Both sides see batteries as crucial components in the 21st century success of their respective auto industries. Lastly, investors face a credibility-sapping wait for sales to take off, let alone profits: SES’s production will only ramp up in earnest in 2025.

Investors should thus apply a dollop of salt to its projections of $5.7 billion of revenue by 2027 – and even more to its dreams of a peer-beating 28% EBITDA margin. True, a pro forma enterprise value of 0.5 times 2027 sales looks cheap next to $10 billion QuantumScape, which trades at roughly 2.7 times, according to Refinitiv data. But investors should still buckle up for a joyride at an electric price.

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BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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