Electric-vehicle battery Microvast has agreed to merge with a SPAC called Tuscan Holdings (NASDAQ:THCB). Given Microvast’s vulnerability to disruption and Tuscan’s high valuation, I recommend that investors sell THCB stock.
In many ways, Microvast’s outlook is similar to that of QuantumScape (NYSE:QS), another EV battery maker that I’ve written about a couple of times. Specifically, beyond both making EV batteries, the two companies appear to be very susceptible to disruption.
The main problem with buying or holding THCB stock is that due to the rapid growth of the EV space amid government subsidies for the vehicles, many companies are trying to improve EV batteries.
As a result, EV battery makers like Microvast and QuantumScape could easily become yesterday’s news.
One company that, of course, has put a great deal of time and effort into improving EV batteries is Elon Musk’s Tesla (NASDAQ:TSLA).
As I pointed out in a previous column on QS stock, the EV company says its batteries can be fully recharged in about 30 minutes. Within a few years, batteries from Tesla and other companies could be recharged in 20 minutes, eliminating the incentive for EV makers to adapt QuantumScape’s offerings.
Microvast claims that its offerings outperform its competitors on battery life, charging times, safety and total cost of ownership, but similar dynamics could hurt the company in the not-too-distant future.
Another warning sign for Microvast is the news that an Israeli start-up called StoreDot in June had reportedly created a charger that “fully” restored the battery of a ” two-wheeled electric vehicle in just five minutes,” according to The Times of Israel.
“We’re on the cusp of achieving a revolution in the electric vehicle charging experience that will remove the critical barrier to mass adoption of electric vehicles,” said StoreDot CEO Doron Myersdorf. He added that lithium-ion batteries which can be fully recharged in five minutes are commercially ready.
In October 2020, Microvast said that its new battery cell could be fully charged “within 20 minutes.” So if StoreDot’s claims are accurate, the Israeli company’s batteries could disrupt those of Microvast.
And making Store Dot’s claims more credible is that it is reportedly backed by major companies BP (NYSE:BP), Daimler (OTC:DDAIF), and Samsung.
The company recently stated that, when it came to the total cost of ownership, its batteries were less expensive than those of its competitors. On that front, too, Microvast could be facing disruption. The prices of lithium-ion batteries have been plummeting over the past decade, and that trend is only expected to continue in the coming years.
With many companies and other organizations obviously working very hard on lowering EV battery costs, one or more of them could easily make a battery that’s meaningfully cheaper than Microvast’s offerings.
Unlike QuantmScape, whose batteries are not anticipated to hit the market for three years, Microvast is already selling a meaningful number of its EV batteries.
In fact, the company reported that its 2020 top line came in at over $100 million, while it has a “significant” backlog.
What’s more, as I pointed out in a previous column on QS stock, a Seeking Alpha columnist who is in the battery sector has expressed doubts about QuantumScape’s technology, while its own CEO has not sounded tremendously confident about its outlook.
InvestorPlace columnist Mark Hake recently calculated that the pro forma market capitalization of THCB stock was nearly $5 billion when its shares were trading at $16.86. It’s trading today at around $13.50.
That puts the trailing price-sales ratio of THCB stock at about 43. Given the high risks and strong threats that Microvast faces, that valuation is far too high.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
The post Dump Your Tuscan Holdings Stock as Competition and Valuation Continue to Mount appeared first on InvestorPlace.
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