It’s the quintessential SPAC formula: Electric Vehicles + Leonardo DiCaprio + Tesla rivalry. But does it cut it anymore?

Confirmation of Polestar’s $20 billion merger with a Nasdaq-listed SPAC has triggered none of the euphoria once seen in the sector.

Polestar is owned by Volvo Car Group and the chairman of Zhejiang Geely Holding Group Co., with Hollywood star DiCaprio also possessing an undisclosed stake. (Volvo itself is a subsidiary of Geely.) A combination with Gores Guggenheim Inc., first mooted in July, has now been agreed. The SPAC’s managers and shareholders, plus new external investors, together get an initial 6% stake in return for injecting $1.1 billion of cash.

This transaction certainly looks less speculative than past SPAC deals in the electric vehicle arena — as you’d expect given Polestar’s volume carmaker parentage. One vehicle, Polestar 2, is in production. Two electric SUVs — to be priced roughly in line with Porsche’s Cayenne and Macan — are due to launch in 2023. A luxury four-door sportscar, likely going up against Porsche’s Panamera, would follow in 2024.

No SPAC deal is complete without off-the-scale forecasts made by the very company supposed to deliver them. On Polestar’s own projections, volumes go from 29,000 this year to some 290,000 in 2025 as Polestar 2’s sales more than triple and new models take off. In turn, revenue would jump more than tenfold to some $18 billion in the same timeframe. Free cash flow finally turns positive in 2025 after burning $3.2 billion of cash along the way. Despite this, Polestar reckons success in delivering on these projections would see it taking only a 2% share of the premium segment on which it’s focused.

This firm is clearly well past the proof-of-concept stage. It also has the benefit of an established manufacturing base. But its ability to deliver still rests on how quickly it can ramp up production and see off competition from other carmakers fighting for space in a lucrative part of the market. Gores investors aren’t taking that as a given.

The deal valued Polestar at three times 2023 estimated sales, falling to 1.5 times 2024 revenue, according to its own projections. Profitable Tesla trades on 9.4 times 2023 estimated sales, falling to 8.6 times in 2024, based on analysts’ forecasts compiled by Bloomberg. In this world, you can always find a racy comparator. Tesla and peer Lucid Group Inc. occupy their own reality. Against other electric vehicle makers, the valuation gap is less pronounced. Pricing in Polestar’s growth will rightly depend on sales starting to become real.

Investors pushed up Gores’s shares only 5% on the news, to a level just above what was seen when deal talks first emerged. That caution is warranted. For starters, stock-market investors will be in a tiny minority. The market may also see a stock overhang hang here. And Gores’ other recent SPAC deals have a mixed trading record.

“The only global EV pure play alongside Tesla” is how Polestar markets itself. It’s what investors used to be dying to hear — but maybe they’re getting more mindful about what they’ll pay for it.

This article was provided by Bloomberg News.