Investors with a keen focus on lithium-ion battery development and manufacturing will want to keep an eye on Microvast Holdings (NASDAQ:MVST) stock. The company has a reasonably well-established business in China and future potential. But for the average retail investor without deep knowledge of battery EV technology, MVST stock presents too many unknowns.
Microvast certainly is an intriguing company and it’s difficult to argue that its best days aren’t in front of the Stafford, Texas company.
After completing its business combination with special purpose acquisition company (SPAC) Tuscan Holdings (NASDAQ:THCB) on July 26, Microvast is flush with cash. “Upon closing, the combined company received approximately $822 million in cash, comprised of approximately $282 million in cash held in trust by Tuscan and the proceeds of a $540 million PIPE from leading institutional investors,” read its debut announcement.
The company is clearly in a position to make a name for itself in the competitive EV battery industry. And it plans to use some of that capital to expand its manufacturing footprint.
MVST Stock Rationale Depends on Guidance
The company is planning to increase its scale by adding 4 GWh of manufacturing capacity in Clarksville, Tennessee and Huzhou, China. The company has a significant sales base in China and the new capacity is expected to be operational in early 2023.
Increased manufacturing capacity is generally a good sign. Yet, it won’t be online for more than a year from now. It’s a step in the right direction, but not one from which investors can glean much information.
But what investors can estimate with relative certainty is Microvast’s expected growth.
The company released guidance of between $145 million to $155 million in revenue for fiscal year 2021 ending Dec. 31.
At the same time, the company expects to make capital expenditures of $170 million during 2021, primarily related to scaling manufacturing and increased R&D spending.
To be sure, $170 million is a lot to spend in exchange for roughly $150 million in revenues. And while that is an unfair comparison because those manufacturing and R&D investments won’t become revenue producing assets until a later date, it is the type of rough calculus investors have to weigh at this time.
Ultimately, potential MVST stock investors face the question of whether guidance of 40% revenue growth is appealing given that large $170 million capital outlay?
Derisking is Required
The optimistic outlook would suggest that the company can expand its footprint in the U.S. and China while also increasing its sales outside of China. That would de-risk the company to a degree.
Yet, at the same time, the company is showing increasing operational and net losses. Through the first six months of 2021, those operational losses more than doubled year on year, reaching $33.18 million in 2021.
Net losses hit $43.37 million in the same period, up 128% on a YoY basis. If Microvast Holdings simply takes its SPAC windfall and continues to do what it has done, investors will worry.
And that leaves most pundits seeking to get a grasp on where the company is headed in these early stages.
In cases such as these Wall Street often serves as a reliable indicator.
Wall Street’s Inconclusive
Investors unsure of what to conclude about MVST stock won’t come to any conclusive opinion after looking to Wall Street.
The sole analyst with coverage on Microvast Holdings, Adam Jonas of Morgan Stanley (NYSE:MS), has it underweight. He’s given it a $6 per share target price while it currently trades for $9. The shares are down more than 22% from their Aug. 10 post-SPAC high. The warrants from the deal (NASDAQ:MVSTW) have fared even worse, down 35% from that date.
Even in the case that Jonas had given it a $20 target price, there isn’t much investors could glean. The analyst’s justification for giving the shares an underweight price is that the company faces stiff competition as it scales and also must diversify its sales base outside of China, where it is arguably over-reliant.
That’s why it’s very difficult to recommend that MVST stock is a buy or a sell. I believe the best course is to watch for further indicators as it scales up manufacturing beginning in 2023. That’s why it’s a hold right now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.