The marriage between special-purpose acquisition companies and clean-tech vehicle startups is on the rocks as regulators push for detail on the one thing most of them lack: a solid business.
Stocks of electric-mobility companies such as Nikola Corp., Lordstown Motors Corp. and Romeo Power Inc. that went public by merging with SPACs are down at least 69 percent from dizzying peaks, as investors question whether their visions for a greener future are divorced from reality.
For months, the Securities and Exchange Commission has raised concern that investors aren't fully informed of risks embedded in SPACs, also known as blank-check companies. The agency warned in early April that the safe-harbor provision — which allows sponsors, targets and others to make business projections — protects participants only from private lawsuits, not SEC enforcement. Republican Sen. John Kennedy of Louisiana introduced legislation to boost disclosures for SPAC founders.
A crackdown could chill the SPAC market, according to Carol Anne Huff, co- chairman of the capital markets practice at international law firm Winston & Strawn. "Forward-looking statements are sometimes wrong, and issuers need comfort to make projections on good faith," Huff said.
Tighter rules would cut to the heart of the relationship between SPACs and green startups, which feed each other's gauzy optimism. SPACs are publicly traded pools of money that seek to buy an existing company in a particular industry. Merging with an EV startup fulfills that goal, with an implied promise of big returns. The startup gets cash and protection — the safe harbor — to tell public investors about its business plan and the green revolution.
The SEC push for more substance jeopardizes this marriage of convenience. Already, SPAC filings dropped to about 30 last month, from February's red-hot peak of 188.