Wall Street is searching for electric vehicle gold
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Wall Street speculators are flocking to electric vehicle startups, assigning gigantic valuations to companies that have yet to produce any vehicles, much less any revenue or profits.
Why it matters: Searching for the next Tesla is a risky proposition. It's still unclear how quickly the electric vehicle market will develop, or how large it will ultimately become — and some of the new electric vehicle players are likely to fail.
What's happening: At least nine electric vehicle-related startups have gone public, or will soon, through a so-called reverse merger with a publicly traded shell company. These special purpose acquisition companies (SPACS) open up new paths to public markets for many companies.
- A handful of other electric vehicle startups are sticking with private financing, some backed by deep-pocketed strategic partners like Amazon, which owns a stake in Rivian, for example.
- Although they're generally lumped together, hardly any of the newcomers are actually trying to copy Tesla, which — don't forget — struggled mightily at first.
- Instead, they're trying to broaden the market Tesla created by carving out new niches, and employing different business strategies.
- Not surprisingly, each company offers a bullish view of the future — along with rosy financial projections — which Barron's cautions are highly speculative.
Here's a partial scorecard to keep track of the players and what sets them apart:
'The electric carmakers:
- Lucid, backed by Saudi Arabia's sovereign wealth fund, claims its Lucid Air luxury sedan is more efficient than a Tesla, but the $700 million cost of a new factory, now under construction in Arizona, could weigh down the company's growth.
- Fisker, which went public Oct. 30, is keeping costs down by outsourcing the electric vehicle platform and manufacturing of its Ocean midsize SUV to Magna, a big auto supplier.
- Canoo, whose SPAC deal should close by year-end, will also outsource production of its electric vans for both consumers and last-mile delivery.
The electric truck manufacturers: Commercial trucks could be first in electrification, which is why companies like Rivian and newly public Hyliion Holdings are targeting fleet customers. Others are too:
- Lordstown Motors, which started trading Oct. 26, is developing an electric pickup truck for commercial fleet buyers looking to save on fuel costs.
- Arrival, backed by Hyundai, UPS and BlackRock, plans to build its electric delivery vans in a series of low-cost microfactories.
- Nikola, the first in the pack to go public, is working on battery-electric and hydrogen fuel cell trucks and it, too, is building a huge factory in Arizona. But a potential partnership with GM is being renegotiated.
Electric vehicle parts and infrastructure:
- Romeo Systems and XL Fleet are working on electric vehicle powertrain components, while QuantumScape is developing solid-state battery technology. All three are going public through SPAC deals.
- Chargepoint sells electric vehicle charging equipment to businesses and parking lot operators, and charges them an annual fee for access to the Chargepoint network. It, too, is going public in a reverse merger.
My thought bubble: Building a car company from scratch is capital intensive, which is why so few are successful. Electric trucks make a lot more sense than passenger electric vehicles, since their routes are predictable and they can be charged overnight at a central depot.
- Of all the electric vehicle-related companies to go public, Chargepoint might be the lowest risk. It requires very little capital, its revenue is recurring, and it's not dependent on selling a lot of vehicles to succeed.
The bottom line: It can be hard to find the winners among all these unproven players, which helps explain the wild ride in electric vehicle stocks.
Editor's note: This story was corrected to note Arrival is backed by BlackRock, not Blackstone.
