Gores Guggenheim Would Make Sense Were It Not for Inflation

Daily Trade

If the backdrop of electric vehicle (EV) focused shell company Gores Guggenheim (NASDAQ:GGPI) only featured soaring gasoline prices with all other factors being normal (as in pre-pandemic normal), then GGPI stock may very well be a buy. Who wouldn’t want to make the transition to EVs, especially in car crazy California, where the average per-gallon gasoline price is $5.7?

Alas, the inflationary environment isn’t just accelerating the pain at the pump. Per the consumer price index (CPI) for March 2022, energy price increases have represented the lion’s share of the economic turmoil, with costs up 32% year-over-year (YOY). But other major product categories have gone up 8% or 9%, reflecting a broader erosion of the consumer economy. Naturally, this doesn’t help the cause for GGPI stock.

To be fair, Polestar — the reverse merger which Gores Guggenheim, a special purpose acquisition company (SPAC) is targeting — caters to a wide consumer spectrum. While its flagship Polestar 1 comes in at an MSRP of $155,000, the more budget friendly Polestar 2 will feature a price of $38,400 — but only after applying a U.S. federal tax credit.

But honestly, with unprecedented events posing unique supply chain risks for the automotive industry, along with macroeconomic headwinds, it would be a remarkable achievement for the Polestar 2 to make good with its low advertised price. Keep in mind that average transaction prices for new EVs hit slightly over $60,000 this year, challenging the upside probability of GGPI stock.

What’s problematic for Polestar — especially given that it’s focusing on the middle-income crowd — is that inflation has been brutal to exactly this consumer base. First, you have a circumstance where median households today could be paying 40% or more of their income on core living expenses, leaving little room for discretionary purchases.

Another factor is that Americans under the circumstances of the new normal are having difficulty making their car payments. In fairness, the operational and upkeep costs of EVs present some advantages for GGPI stock. But the data suggests that many if not most households don’t have the finances necessary to afford $40K-plus vehicles (seeing as how the federal tax credit is a post-purchase benefit, if it’s even applicable at all).

All told, Polestar may be competing in an extremely troubled market environment, which leaves GGPI stock as an investment that’s largely sensible for risk-tolerant speculators, not your typical blue-chip investor.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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.

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