Now that Microvast has confirmed that it has an agreement in place to combine with Tuscan Holdings (NASDAQ:THCB), it’s time to start looking at the possibilities created by this merger. On the face of it, an investment in THCB stock looks like a good bet.
The electric vehicle (EV) market continues to get very crowded. But it’s also getting very fragmented. One question that’s fair to ask is if there are enough pieces of the pie to go around. Microvast is seeking to capture an important niche as an electric battery provider for public transportation vehicles.
It’s not a secret that mass transit looks to be a prime market for electrification. Fleet owners and municipalities are looking to keep their costs down. Electric vehicles help lower overall lifecycle costs because they have fewer parts.
A 2018 article by McKinsey Group cited urban electric buses as being the fastest-growing part of the EV market. And Microvast already has at least one contract in its pocket. In 2020, the U.S. Advanced Battery Consortium awarded Microvast a contract to develop low-cost, fast-charging batteries.
Plus, the EV market is still being propped up by government subsidies, and that trend will likely continue for the near future.
However, this may not be the slam dunk EV play that some investors think it is, and this article will explore a couple of reasons for that belief.
A Pandemic Loser?
By their very nature, companies that go public via a SPAC carry some risk. However, in the case of Microvast, investors need to consider the size of its addressable market.
Prior to the pandemic, analysts forecast that the compound annual growth rate (CAGR) of electric buses would be 27.2% between now and 2027. That projects to 935,000 buses.
However, since the pandemic, the forecast has changed to reflect the lack of demand for public transportation. That said, the market is still expected to grow at a CAGR of 11.58% which projects to 256,000 vehicles.
That’s quite a drop. But it’s hard to tell how many electric buses will be sold. If the economy bounces back to the extent that some economists are suggesting it will, then demand for electric buses could surge. On the other hand, if the novel coronavirus continues to limit travel for longer than expected, the forecast could drop even further.
Electric Isn’t the Only Game in Town
Another reason for investors to be careful with THCB stock is that electric buses may not be the only alternative to traditional gas-powered or diesel-powered buses. Buses powered by hydrogen fuel cells last longer than electric buses, and they refuel faster and provide better route flexibility.
Although the United States is still in the early stages of building infrastructure that will enable hydrogen to be widely used, Europe has plans to add 1,000 hydrogen fuel cell buses over the next few years. And China has laid out a plan to build its hydrogen society, including many initiatives launched by various cities and state-owned companies. In fact, the country has an ambitious plan to have 1,000 hydrogen fuel cell buses operating by the time it hosts the 2022 Summer Olympic Games.
What Should Investors Do With THCB Stock?
Investors don’t seem to have an easy answer for that question. THCB stock soared after it was confirmed that Microvast was indeed the SPAC’s target. But the stock gave up all those gains later in the week.
However, THCB stock is still trading for nearly $20 per share today. As a result, Microvast’s positive outlook may already be fully reflected by the shares.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.