Chijet (NASDAQ: CJET) stock has just arrived on NASDAQ through a SPAC merger with Jupiter Wellness. Since then the stock has dropped from the standard SPAC price of $10 to the current $3.80. This isn't, perhaps, what folk would have wanted. But it's a lovely story to explain the SPAC world.
So, Chijet is a China based EV maker. That's a market that is coming under its own pressures, with NIO reporting problems in sales, as are others. What's not entirely certain is whether it's the whole China EV market that's slowing or we're getting the emergence of dominant players and the smaller folk being buffeted to the sides of the marketplace. But OK, China and EVs.
A SPAC is what used to be called a shell company. There's a quotation, people have subscribed to stock at $10 a piece and that's all there is, the quotation and a pile of cash. The aim is to merge this with a private company and so bring that private company to market. This avoids the tedious process of an IPO plus the 7% of money raised that goes sa fees to the organising banks. It also means that companies that wouldn't survive the IPO process - too young say - can come to market.
Chijet share price from NASDAQ
One important point is that those who have subscribed at $10 can withdraw at the time of the actual merger. Meaning there's less cash there - and this is also the usual reason for the fall in a post-SPAC stock price. That people have withdrawn, that less capital has been raised than aimed at. Unfortunately we tend to get the full details of this after a few days, not immediately.
The other issue we've got here is that the entire idea depends upon there being a flow of investable companies that can't - or won't - go through the normal IPO process. If SPACs are bringing to market worse than normal companies then it becomes a much less attractive investment scenario.
And, well, Chijet. The original idea was that it would merge with the Deep Medicine SPAC at a $2.55 billion valuation. That got called off, this with Jupiter is the second attempt. And, you know, if someone passed on it then it's not clearly and obviously a perfect little company, is it? Also, if SPACs clearly originally aiming at healthcare mergers are now merging (or declining to) with a car company there's a certain shortage of worthwhile targets there.
We've absolutely no doubt at all that some SPAC mergers are entirely great. But we do tend to think that there's a certain amount of froth being pushed through the pipeline too. Simply because we're unconvinced that there's some great stockpile of companies that should be on public markets but aren't. The Chijet performance so far being a part of our proof.
