Thanksgiving Dessert
Tags: Investing, Energy, Thanksgiving, Electric Vehicles

Let me be the first to wish everybody a Happy Thanksgiving! There may be a few empty seats around everyone’s table this year, so I wanted to send some holiday cheer to the Flan Club with another industry breakdown and public market play!

This week’s curation will be from the energy industry. I’ll try to diversify when I can but you can expect the bulk of these to be biotech or energy related. Using the classic and very appropriate horse-racing analogy for my investing approach: I love betting on the horses in the biotech industry, but what I find most appealing about the energy industry is the track itself.

I’ll take this time to disclaim that I may/may not own securities in the companies mentioned. I’ll try to tell you when I do, but in no way are my stock plays financial advice. Everything I do is satire and should be taken as such.

AS ALWAYS TL;DR AT THE BOTTOM

Government officials have discouraged people from having large gatherings this holiday to stunt the spread of COVID-19. While some may still be traveling, if the lack of small birds at my grocery store is any indicator, I’d say there will be significantly fewer cars on the road this year.

While the ongoing pandemic has affected millions of lives around the world, the first half of 2020 saw an unprecedented decline in CO2 emissions. In last week’s post, I gave my two cents about Altimmune ($ALT) and recent vaccine news. During my research I came across not one, not two, but three articles analyzing atmospheric reductions resulting from government imposed lockdowns.

Total global CO2 emissions were 8.8% lower in the first half year of 2020 than in 2019. As soon as lockdown measures were lifted, most economies resumed their usual levels of emission. This period of historically low emissions will have a rather minuscule effect on the long-term CO2 concentration in the atmosphere. Thus, the authors stress that the only valid strategy to stabilize the climate is a complete overhaul of our energy production and consumption systems. Individual behavior is certainly important, but structural changes will in the long run reduce the carbon intensity of our global economy.

Under the Paris Agreement in 2015, Obama committed the US to reduce greenhouse gas emissions 26–28% by 2025, from 2005 levels. In 2019, emissions were 12% down on 2005 levels. Despite President Trump withdrawing the US from these targets, seeking to roll back emissions standards and environmental protections; in the past two years the largest reductions in global emissions came from the US. An important signal that the winds may be shifting when it comes to investing in sustainability solutions. Numerous U.S. corporations already committed to aggressive energy policies that will reduce their carbon dependency and emissions.

“If we like it or not these are the numbers. Of course, can the US do more? Definitely. Can the US be a leader of the global energy transition? Definitely. So therefore the US politics will matter more.” — Fatih Birol, Executive Director of the International Energy Agency

President-elect Joe Biden has already announced that he intends to re-join the Paris Agreement. With substantial ground to cover, and pressure to accelerate emission deadlines, Biden has detailed plans for the USA to achieve a 100% clean energy economy (net zero emissions) by 2050 and for the country to become a “clean energy superpower.”

Vehicle emissions will be at the core of this as Biden wants to use the Federal government procurement system, which spends $500 billion per year, to support the drive towards clean energy and zero-emission vehicles. This system is intended to swap government fleet vehicles with American-made EVs and create a system that offers rebates or incentives for consumers to replace gas cars with electric vehicles. EVs are responsible for considerably lower emissions over their lifetime than conventional internal combustion engine vehicles.

Note that in countries with coal-intensive electricity generation like the US, the benefits of EVs are smaller and can have similar lifetime emissions to the most efficient conventional vehicles — such as hybrid-electric models. To reach his net zero-goal, he has promised federal spending of $1.7 trillion over the next ten years to support the buildout of the USA’s clean energy infrastructure.

PitchBook has predicted Biden’s plan to invest in clean energy and sustainable infrastructure will create “a potential boon for the cleantech startup ecosystem.” This capital will be used as an instrument of transformational change and as a sail to catch the winds of the sustainability mega-trend. Combining this momentum with aligned federal policy has already increased investors’ attention on the sector.

The Three Stooges of the EV Market (Tesla, NIO, Nikola)

Tesla ($TSLA) is an American electric vehicle and clean energy company. Tesla’s current products include electric cars, solar panels/solar roof tiles, battery energy storage from home to grid scale, and related products/services. The Palo Alto-based EV maker has seen more than a 400% gain from the beginning of 2020 till today. Elon Musk recently surpassed Bill Gates in terms of wealth in a recent move.

Chinese electric-vehicle maker Nio, ($NIO) celebrated their 6th birthday yesterday as its market cap recently surpassed that of automakers BMW and General Motors. The company also manufactures e-powertrains, battery packs, and various other components and offers battery swapping services. This designer, manufacturer, and seller of electric electric SUVs has gained 1277.6% year-to-date in the stock market.

Nikola ($NKLA) is an American company that has presented a number of zero-emission vehicle concepts since 2016 and has indicated plans to produce some of them in the future. The company is based in Phoenix, Arizona, where its corporate headquarters is located. Yesterday they snapped their eight-day streak over the course of which the stock has rocketed over 75%.

Splashy stock market gains generated a buying frenzy among EV investors. This year in particular has featured a boom in special purpose acquisition companies, or SPACs. This blind capital pool is usually run by a private equity manager looking to take a private company public.

More recently, investors have begun bidding up shares of SPACs that have rumored or already agreed to attractive deals. Speculation in SPACs is reminiscent of the dot-com bubble. Nikola went public by merging with a SPAC called VectoIQ ($VTIQ) and has delivered significant returns to early investors.

“We chose the SPAC route because there was simply too much uncertainty in the market with the coronavirus,” Nikola Chief Financial Officer Kim Brady said in an interview with the Wall Street Journal. “If we had pursued the IPO path, we would not be a public company at this point.”

With a typical IPO, a company learns how much capital it is raising only after several months of wrangling with underwriters and investors. It can also fall through at the last minute, especially if markets slide. A SPAC deal can take similar time to complete, but the negotiations are simpler and the terms are determined earlier in the process.

Post-merger returns from stars like Nikola, Virgin Galactic, and DraftKings have been stunning but some critics worry that companies going public through SPACs aren’t getting as much scrutiny as those using traditional IPOs, creating risks for investors. For example, Nikola now faces probes from the Department of Justice over whether it misled investors when raising money.

Electric vehicles aren’t the only overhyped SPAC sector. So far 11 cannabis SPACs have either announced a deal or are searching for one. And in online gaming, there are no fewer than 10 SPACs in the works. The sensible thing is probably to stay on the sidelines for this one. I am sure this market can stay irrational longer than I can stay solvent. This bubble may be fun to watch from the outside, but am I being foolish for not riding the wave while these SPAC-tacular returns continue?

Let me try to make the bull case for playing these. Probably won’t win any investor of the year awards for doing this move, but these are the types of risks the Flan Page was built for. Institutional investors like California’s State Pension fund seem to be comfortable having large positions in SPACs, why shouldn’t I?

The only real long-term winners here may be consumers and the environment, but I’m willing to buy in and find out. After consulting with the Capos for advice on what to look for, I was initiated into the SPAC mafia on Tuesday at market open and began building a crew.

My Three Stooges of the EV Market : (Nuvve, Microvast, Canoo)

Newborn Acquisition Corp. ($NBAC) a publicly traded special purpose acquisition company announced the signing of a definitive merger agreement to take Nuvve public. Nuvve’s proprietary vehicle-to-grid (V2G) technology enables the linking of multiple electric vehicle (EV) batteries through EV charging stations into a virtual power plant (VPP) to absorb or release energy from the grid as needed.

The company monetized this system, meaning that customers have the opportunity to be paid for this service. According to Nuvve, the most established commercial operation of such a power plant has been realized in Denmark. Nuvve’s technology and ecosystem has proven to successfully lower the cost of electric vehicle ownership, while supporting the integration of renewable energy for a scalable and sustainable green society. Nuuve projects +300% revenue growth over the next 2 years and current valuations are at a significant discount to the two primary comparables ($BLNK and $SBE) . [UPDATE: As of posting this may not be the case anymore… see Portfolio Status below]

Purchased 100 shares of $NBAC at $12.05

Tuscan Holdings Corp ($THCB) has reportedly progressed to advanced levels of merger conversations with Microvast. This Texas based EV Battery Maker has business focused in the fruitful Chinese EV market and expects to finish the year with over $100 million in revenue. Based on Lithium Titanium Oxide (LTO) chemistry, the electric buses used in the 2018 Winter Olympic Games were powered using their ultrafast batteries which can be fully charged within 10 minutes with a 400 kW charger.

There is a shareholder meeting on December 3rd to approve the deal or extend the period of time THCB has to find a deal from 12/7/2020 to 4/30/2021. It is worth noting this was originally a cannabis SPACs (see the THC). At that meeting, preferred shareholders will have the right to redeem shares at their buy-in price of $10 — which means there’s a chance a significant portion of the trust could be returned to them leaving the chance of this deal closing in the dust. There is also the potential for this stock to climb heading into the 12/3 meeting and a chance investors are pleased with the acquisition target. Let’s hope this deal goes through!

Purchased 100 shares of $THCB at $11.29

Hennessy Capital ($HCAC) is merging with start-up Canoo a subscriptions-only electric vehicle with a loft-like interior. In this presentation, the Chief Product Officer indicated that the app would determine when the vehicle is not being used and would allow (with your permission) sub-leasing/sub-subscription of the vehicle. This bet is that the subscription based car will be the evolution of the lease market which leases 4 million new vehicles a year. A subscription includes the lease, insurance, maintenance, DMV bullshit and etc all in one monthly flat-fee.

The subscription like any other asset-backed security, this company can easily securitize the recurring subscription cash flow and essentially sell the vehicles to investors, clearing up capital from their balance sheet. Rather than a one-time vehicle sale, the revenue from the subscription model has a 4x greater margin. Furthermore, the subscription model generates consistent cash flow and is more resilient than one-time vehicle sales.

Purchased 100 shares of $HCAC at $11.73

Portfolio Status | 11/30/20 | Market Open

$ALT — Cost Basis - $8.93 | Market Price - $10.79 | | +20%

$NBAC — Cost Basis - $12.05 | Market Price - $16.90 | | +40%

$THCB — Cost Basis - $11.29 | Market Price - $13.00 | | +15%

$HCAC — Cost Basis - $11.73 | Market Price - $13.50 | | +15%

TOTAL UNREALIZED GAINS: +23%

TL;DR

The landscape for energy investing is fertile. With “car-guy” Joe Biden poised to take office, electric vehicle stocks have been on a run! I want to hang-10 on the EV SPAC wave and get in on the magic; so I responsibly purchased 100 shares in $NBAC, $THCB, and $HCAC at market open on Tuesday 11/24/20 and will let you guys live vicariously through me.

Thanksgiving Special Diversification Strategy (3–3 Overall)

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