Short Sellers Target SPACs

The dollar value of bearish bets against SPACs has more than tripled

Special Purpose Acquisition Companies (SPACs), which have been the beauties of the ball for the past six months, now find themselves in the cross-hairs of short sellers who are betting on many of them to stumble. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to S3 Partners.

Some of the most popular SPACs have seen the sharpest climb in short bets, including one formed by venture capitalist Chamath Palihapitiya that plans to merge with lending startup Social Finance, according to The Wall Street Journal. That SPAC has 19% of its shares outstanding sold short, according to data from S&P Global Market Intelligence.

EV SPACs Among the Hardest Hit

The short interest in Churchill Capital Corp. IV, a SPAC that is merging with electric-vehicle startup Lucid Motors, more than doubled in March to about 5%.

XL Fleet, an electric vehicle fleet electrification company, was targeted last week by famed short seller Muddy Waters Capital, which issued a report alleging that XL inflated its sales pipeline and made misleading claims about its technology, among other issues. The short seller blasted XL for an unsatisfying response to its challenge and ended the report with this choice quote: "Based on XL’s response with its numerous non-denials, we continue to believe that the company greatly exaggerates its pipeline, performance, and potential sales. In short, XL is more SPAC trash." Shares of XL fell 13% last week when that report was released.

Even Lordstown Motors, the darling of the electric vehicle boom, has been targeted. Shares of Lordstown fell nearly 17% Friday after Hindenburg Research released a report saying the electric-truck startup had misled investors on its orders and production. Short interest in Lordstown shares rose to 5% from 3.4% in the week before the report’s publication, according to data from S&P, as reported by The Wall Street Journal.

Share price chart for EV SPACs
Chart courtesy YCharts.

SEC Warns of Celebrity SPACs

Right on time, as usual, the Securities & Exchange Commission (SEC) issued a warning on March 10, alerting investors that SPACs can be risky, and not to invest in them because it has a celebrity endorsement. 

"However, celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors," the SEC said. "Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment."

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  1. The Wall Street Journal. "Short Sellers Boost Bets Against SPACs."

  2. Muddy Waters Research. "XL Fleet: Not Denying Much, Still SPAC Trash."

  3. Hindenburg Research. "The Lordstown Motors Mirage: Fake Orders, Undisclosed Production Hurdles, And A Prototype Inferno."

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