Carrying the momentum of the special purpose acquisition company (SPAC) into 2021, Newborn Acquisition Corp. (NASDAQ:NBAC) is the latest such vehicle to draw considerable investor interest. Assuming the merger goes through, Newborn will become Nuvve Corporation, an innovative firm that specializes in vehicle-to-grid (V2G) technology that can potentially bring electric vehicles (EVs) into the mainstream. Not surprisingly, there’s high hope for NBAC stock.
While SPACs can sometimes be speculative affairs depending on the details of the reverse merger in question, Newborn Acquisition offers one of the most compelling narratives in the market. My InvestorPlace colleague Larry Ramer did an excellent job explaining V2G and its forward-looking applications. Long story short, vehicle-to-grid is exactly what it sounds like: EVs can return energy back to the grid.
Now, why the heck would a driver want to do that? Money, for one. Typically, many if not most EV drivers charge their vehicles at home at night. This period is known as baseload power, the minimum amount of electricity that needs to be supplied to the grid at any given time. Since solar is useless in the dark, most baseload power typically comes from “dirty” sources like coal.
This is the argument about marginal energy that’s a sticking point of debate among EV proponents. However, solutions from Nuvve can help reduce the overall impact by providing the grid energy when it needs it the most — in daytime, during peak hours or under periods of unforeseen demand, such as a heat wave. With the memory of the California rolling blackouts still fresh, NBAC stock has a powerful catalyst.
Further, this contributes to the broader incentive of going EV. First, many automakers qualify for the EV tax credit. Second, EVs are cheaper to operate and maintain. Third, V2G provides yet another financial incentive, this time being an accretive one. Finally, the technology helps stabilize the grid, making it environmentally and socially friendly. What’s not to love about NBAC stock?
The Biggest Challenge for NBAC Stock
On the front face, NBAC stock almost lures you into hitting the buy button. The idea of making money for driving your EV may be too much of a powerful incentive, in line with other tailwinds for EV purchases. After all, you can’t sell your gasoline on the margin back to the big oil firms at a premium.
In other words, this is environmental arbitrage. Individual drivers can charge cheaply at night and profit during the day. Keep your EV long enough, and combustion cars really lose their charm. It seems too good to be true. And if you’re about to buy NBAC stock, it could be.
For starters, the economies of scale of V2G may not work unless more people make the transition to EVs. Moreover, V2G is not a feasible financial incentive for drivers over the long run. That’s because with current-generation lithium-ion batteries, high-rate charging or discharging introduces capacity degradation. Even ardent Tesla (NASDAQ:TSLA) owners will tell you to avoid constant supercharging.
Another not-so-encouraging point for NBAC stock is that V2G is not yet economically effective for all types of power. Yes, in high-demand situations, V2G can help relieve stress for the grid, hopefully preventing rolling blackouts. However, it’s not effective for providing baseload power, because a large powerplant can better support this from a reliability and cost-efficiency perspective.
Further, researchers from the CVR College of Engineering in Hyderabad, India, stated that there could be compatibility difficulties “when small scale generations are integrated into large power generating units.” Certainly, fresh technical concepts always come with risks, which is something to be aware of with NBAC stock.
The last point I’ll make regarding possible disadvantages is power transmission loss. According to the U.S. Energy Information Administration, electricity transmission and distribution losses totaled approximately 5% in 2015 through 2019. This is not my specialty, so I’m not sure about the magnitude of power transmission losses in V2G applications. But again, it’s another point to consider.
SPAC Fever Can Win Out
Over the trailing year, SPAC-based investments have been hot commodities on Wall Street. Since we’re still in the crazy phase of the market, I don’t think a speculative trade on NBAC stock is a bad idea. Given the volatility of shares, though, I’d like to see if NBAC can come down a little bit more, perhaps $15 or below.
Because there’s another element here that I didn’t mention above: competition. As Ramer pointed out, Volkswagen (OTCMKTS:VWAGY) and Tesla have demonstrated intention to move into the V2G space. And that concerns me. Because with so many EV-related businesses out there, I don’t think they can all win.
Typically, cars are the second-most expensive purchase people make. Eventually, you’ll see consolidation. That will likely favor the big boys, meaning startups could start to struggle. Thus, while I appreciate the ingenuity behind Nuvve, for my money, I want some risk taken off the table. A further discount just might do the trick.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.