Lotus SPAC calls for scrutiny under the bonnet
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Katrina Hamlin
HONG KONG, Feb 3 (Reuters Breakingviews) -A deal to drive sportscar specialist Lotus Technology into a New York listing via a merger with a special-purpose acquisition company deserves a close look under the bonnet. Buyer L Catterton Asia Acquisition LCAA.O has engineered a transaction valuing the enterprise at $5.4 billion. But plans to electrify a brand known for speedy gas guzzlers are bold. Outsourcing manufacturing could be costly too.
The valuation works out at about 12 times projected EBITDA for 2025. That’s less rich than the 20 times and 15 times ascribed to Ferrari RACE.MI and Tesla TSLA.O, according to Refinitiv. However, it assumes the group, which has sold around 100,000 cars since it was founded in 1948, can deliver more than 150,00 vehicles between 2023 and 2025. At the same time management will manoeuvre Lotus along a new road, producing only electric cars and branching into sport utility vehicles.
The idea has wheels. Lotus helped Tesla to build its early Roadster model, after all. Meanwhile, demand for battery-powered brands is growing fast, and Lotus argues the luxury segment - especially the lower range of around $100,000 a car that it’s targeting - will accelerate faster than the mass market. Reassuringly, Lotus is outsourcing manufacturing of its new SUVs to the Wuhan factory of its current owner, China’s Geely, which boasts a vast portfolio of battery-powered models under badges including Volvo Car VOLCARb.ST and Polestar.
But the relationship raises questions too. Geely needs to be compensated. How that will work is not clear. Another Chinese EV maker, Nio NIO.N, has a similar setup with a state-backed partner: Nio pays regular fees for this service, as well as contributing to investments into the plant. In 2022, when it delivered around 120,000 vehicles for the full year, filings show Nio’s gross margin hovered in the low teens in the first three quarters. That suggests Lotus’ projected gross margin of at least 21% by 2025 could be punchy.
More uncertainty comes in the form of a put option. This requires the soon-to-be-listed Lotus to buy affiliated unit Lotus UK from Geely and Malaysia’s Etika at a pre-agreed price. The terms are also unclear.
Previous spivvy SPACs touting huge electric-car success have since suffered – Lucid LCID.O stock has fallen some 80% from its 2021 high. On the face of it, Lotus’ sleek exterior and assistance from an experienced manufacturer are reassuring. But would-be buyers will nonetheless do well to give the tires a good, hard kick.
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CONTEXT NEWS
Blank-cheque company L Catterton Asia Acquisition on Jan. 31 agreed to buy electric-vehicle maker Lotus Technology in a deal valuing the target’s enterprise at $5.4 billion.
Current owners, led by Geely, are expected to retain their stakes and own just under 90% of the combined company once the transaction closes.
Lotus Technology was founded in 2021 as part of the Lotus Group, in which Geely bought a 51% stake in 2017. Lotus UK, the other main subsidiary of Lotus Group, is not included in the merger. As part of the transaction, Lotus Tech will be responsible for sales and marketing for both companies and has agreed to a put option requiring it to buy Lotus UK from the current owners at a pre-agreed price if certain conditions are met.
Editing by Antony Currie and Thomas Shum
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