The SEC Puts the Brakes On EV SPAC-Mania

Young electric car companies have drawn big valuations from investors. Now they’re drawing regulator scrutiny, too

David Welch

Here’s a sure sign that a SPAC-lash is afoot. Electric vehicle startup Lucid Group Inc., whose market value once soared past that of General Motors Co. this year, said on Dec. 6 that the U.S. Securities and Exchange Commission was probing its barely five-month-old blank-check merger and business projections given to investors. The admission sent the stock reeling.

It was a surprise disclosure from a company that’s seen as having real potential in the electric vehicle race. Lucid Chief Executive Officer Peter Rawlinson came from Tesla Inc., and in September the U.S. Environmental Protection Agency certified that the company’s Air sedan can travel a worldbest 520 miles on a single charge. And Lucid had gone public with far more credibility than fellow SPAC newbies Nikola Corp. and Lordstown Motors Corp., both of which ousted their CEOs in the past two years after SEC investigations.

Only early this year, SPAC deals—in which companies go public via a merger with a company formed specifically to make acquisitions—were among Wall Street’s favorite investments. Now there is scrutiny from all sides. The SEC is taking a harder look at the transactions, particularly at financial disclosures and statements about their prospects as public companies. Meanwhile, investors are playing it safer and opting out of more of the mergers. And stocks in many of the post-merger deals have fallen, another indication that market enthusiasm is waning. “The notion that a SPAC is price certainty is a fantasy,” says New York University School of Law professor Michael Ohlrogge. “People are realizing that the deals they thought were great are not.”