Electric vehicle startups have raised an absurd amount of money in the last year by merging with special purpose acquisition companies, or SPACs. That money — billions of dollars, collectively — was supposed to be enough to help each of them start fighting for space in a market dominated by Tesla. But many of these startups are still having trouble getting rolling.
EV startup struggles are not new. Most of the ones focused on passenger vehicles that are still around spent years grappling with the inherent, unavoidable difficulties of automotive manufacturing. Now, though, the bruises of that fight are developing in broad daylight — all while they try to beat deep-pocketed legacy automakers to the punch.
Ohio-based Lordstown Motors raised nearly $700 million when it went public late last year and has backing from America’s largest automaker, General Motors. But it’s spending faster than expected — it lost $125 million in the first quarter — and on Tuesday, the company said it needs more cash in order to hit its goal of making its first 2,200 electric pickup trucks by the end of 2021.
California-based Canoo went public in December and has already replaced its leadership team. The new one has upended the startup’s business model and largely thrown out the projections that were used to raise around $600 million during last year’s merger with a SPAC.
Startups that have announced SPAC mergers but have yet to complete them have run into some trouble, too. Lucid Motors again delayed the release of its luxury electric sedan, the Air, in order to address quality assurance issues raised by its investors. When it does go public, the California startup is looking to add $4.4 billion to the sizable war chest it started building when Saudi Arabia pledged some $1.3 billion in exchange for majority control in 2018.
Another California EV startup working on a luxury electric vehicle, Faraday Future, is set to raise $1 billion when its own SPAC merger is complete. But this week, Faraday Future told investors that it needs to recalculate basically all of the financial projections it made so far in order to follow new guidance from the Securities and Exchange Commission (SEC). Other startups have had to make similar adjustments.
Some of these problems are the result of bad timing. These companies are trying to debut vehicles at a time when the pandemic has put a ton of stress on the automotive supply chain. Lucid Motors CEO Peter Rawlinson told Bloomberg on Wednesday that “COVID has wrecked havoc with our process.” On Tuesday, Lordstown Motors said the pandemic has created “significantly higher than expected expenditures for parts/equipment, expedited shipping costs, and expenses associated with third-party engineering resources.”
But these startups also rushed to become public companies so they could take advantage of the deluge of money during the SPAC merger boom. That has left them scrambling to cope with the demands of being listed on a major stock exchange. On Canoo’s first earnings call as a publicly traded company, for example, an analyst called out the startup’s head of investor relations for not returning emails. In response, CEO Tony Aquila admitted to the team being “overwhelmed.”
Not all of the side effects of this rush to market have been so frivolous, though. Nearly all of these startups have disclosed so-called “material weaknesses” in their internal financial practices in filings with the SEC. Faraday Future admitted that, among other things, it “did not design and maintain effective controls for communicating and sharing information between the legal and accounting and finance departments,” and that it was not able to “address the identification of and accounting for certain non-routine, unusual or complex transactions” — which is notable considering the startup’s well-documented history with unusual and complex financial transactions.
Fisker Inc., which raised $1 billion in its own merger last year, admitted to weaknesses in its “risk assessment process, including as it relates to fraud risks.”
What’s more, multiple electric vehicle startups are now under government investigation. The SEC is probing Lordstown Motors over claims that it misrepresented the number of preorders for its trucks. It’s also investigating Canoo’s SPAC merger, as well as the recent executive departures. Both the SEC and the Department of Justice have opened investigations into hydrogen trucking startup Nikola, which was one of the earliest electric vehicle companies to go public in a SPAC merger. And if that weren’t enough, all of these startups have been hit with multiple securities fraud lawsuits from shareholders alleging they were misled.
Only Lordstown Motors and Lucid Motors remain committed to starting production by the end of 2021, which means most of these startups are still a long way away from generating revenue, let alone turning a profit. The only exception so far is Fisker Inc., which sold $22,000 worth of merchandise in the first quarter — though the cost of those sales was $17,000, meaning the company netted just $5,000.
Without any near-term revenue, these EV startups are now in a sort of race to get into production before their massive piles of cash run out. And some are already looking for more help, buoyed by the fact that many of them were able to use funds from the SPAC mergers to wipe out any existing debt.
Fisker Inc. founder Henrik Fisker has already said he is open to borrowing money to make sure his company meets a late 2022 production target. Lordstown Motors said Tuesday that it is looking to borrow against some of its assets (which include a former GM factory and equipment). It’s also talking to strategic investors and is in the running for a loan from the Department of Energy’s Advanced Technology Vehicles Manufacturing program, from which Tesla once borrowed.
If the startup isn’t able to raise more money, Lordstown Motors CEO Steve Burns said it will have to cut its production target to around 1,000 trucks this year.
“We wanted to make sure everybody knew the worst, worst case is we are still making pickup trucks this year,” Burns said.
Lordstown Motors is especially under pressure, as the startup is focused on making and selling its electric pickup, the Endurance, exclusively to commercial customers. But Ford not only just revealed an all-electric version of its bestselling truck, the F-150, it also showed off a fleet-focused version with a cheaper base price than the Endurance.
Burns, without mentioning the Detroit automaker or its new truck by name, said this week the F-150 Lightning launch helped prove that electric pickups are now a “mainstream” idea. He remained confident that Lordstown Motors could beat Ford to market, as the Lightning is not supposed to go on sale until the first half of 2022. But, he said, it “would be crushing to have the lead, have a first market mover, and not be able to fulfill [that goal].”