Geely’s $7 bln Lotus deal breaks speed limit

A SPAC odyssey. Lotus Tech is pushing too hard on the accelerator. The storied marque's new offshoot, which is focused on electric cars, has listed in New York via a deal with a blank-cheque group. But it's hard to justify its racy valuation.

Granted, since the merger with special-purpose acquisition company L Catterton Asia Acquisition Corp closed on Friday, shares have fallen by almost a fifth. That gives the company a market capitalisation of nearly $8 billion, 12% above the initial value ascribed to the deal in December. Factor in debt and cash as reported for the end of September, and the enterprise is worth $6.9 billion, or roughly 1.4 times Lotus' sales forecast for 2024. The companies argue that comparisons with fellow high-end brands make Lotus relatively good value. The figure for Aston Martin is similar, while Ferrari's business clocks in at more than 10 times this year's revenue forecast, per Visible Alpha.

But it's not an apples-to-apples comparison. Lotus Tech intends to be the first of the traditional luxury automakers to turn fully electric. Fueled by $880 million of new investment raised as part of the merger, it is phasing out gas guzzlers by 2027 and introducing electric models like the Eletre sports-utility vehicle, which are less expensive than its famous sports cars.

So it makes more sense to factor in how other battery-powered brands are performing. Slower sales growth is dragging on EV specialists including Nio, Xpeng and Polestar, whose ventures are all worth less than forecast revenue for 2024, according to Visible Alpha.

True, the relationship with Geely could give the group an edge. Lotus is outsourcing the bulk of production to the Chinese auto giant, which bought a 51% stake in 2017. Making new electric sedans and SUVs at their parent's plant in Wuhan promises to be much less costly than the legacy production base in the UK, where Lotus sports cars are crafted.

But angst over China's rocketing auto exports has grown since the deal was first announced last year. The EU is investigating a "flood" of Chinese cars and considering tariffs, while the U.S. is making it harder for any Chinese-produced goods and components to enter the electric-vehicle supply chain.

Shares in Polestar, another premium electric-car badge in the Geely garage that went public through a deal with a SPAC, have lost more than 90% of their value since peaking in 2021. Lotus' investors might also find they need to reduce their speed.