Auto startups chasing Tesla race past red flags to go public

In this news, we discuss the Auto startups chasing Tesla race past red flags to go public.

DETROIT (Reuters) – Missed the Tesla rally but still want to ride the wave of electric vehicles?

A flood of EV-related startups backed by blank check companies are lining up to go public, so there’s plenty to choose from. But like Tesla in its early days, few have products that are ready to sell or are likely to generate significant income anytime soon.

Instead, investors will be relying on optimistic production, sales and revenue forecasts for new cars, trucks and batteries, all set to scramble for a slice of markets that will be much more crowded than when cars. Tesla’s TSLA.O will be in circulation for the first time.

Take Fisker Inc, for example. It was launched in 2016, just three years after the bankruptcy of its predecessor and Tesla’s first rival, Fisker Automobile.

In July, Fisker Inc. announced a $ 2.9 billion reverse merger deal with Spartan Energy Acquisition Corp SPAQ.N, a special purpose acquisition company (SPAC), and plans to go public later this year. .

He has no income and his Fisker Ocean electric sport utility vehicle (SUV) is at least two years away from production on a project heavily dependent on reaching deals with partners who will build the car and supply key components. .

This isn’t particularly unique for young companies in the industry looking to use PSPC to go public and bypass the scrutiny of a traditional IPO process, according to company presentations and interviews with executives and investors.

It also didn’t appear to be a problem earlier this year when US electric truck maker Nikola Motors NKLA.O used a SPAC to go public. Shares of the company, which hopes to generate income next year, nearly tripled after it was listed on the Nasdaq stock exchange.

But they collapsed when a short seller asked if founder Trevor Milton had made false claims about Nikola’s technology, forcing the 38-year-old entrepreneur to step down as executive chairman – and making some investors more careful.

Nikola and Milton have publicly denied the charges and threatened to take legal action against the short seller, Hindenberg Research.

“Good storytelling is an important part of being a good founder and entrepreneur – but it’s better not to be the only part,” says Evangelos Simoudis, managing partner and founder of start-up investor Synapse Partners.

‘THIS IS A FORECAST’

Fisker Inc founder Henrik Fisker is well known in the industry for designing sports cars such as Aston Martin’s Vantage, and for his failing electric vehicle firm Fisker Automobile which went bankrupt in 2013 after having spent over a billion dollars.

Fisker Automotive missed its revenue, price, production and sales targets before the collapse of its battery supplier forced it to suspend production of its Fisker Karma, which reached customers about two years later than expected and sold for a much higher price than originally advertised.

This time around, he is convinced he has learned from his mistakes and will not be among the startups considering going public that do not meet investor expectations.

“A lot of them won’t be able to launch a successful product in time … it’s just a fact,” he told Reuters. “The question then is how much are investors willing to forgive?”

He also said Nikola’s woes should cause potential investors to take a closer look at what they were buying into.

“It was probably a bit of a wake-up call for investors to really dig a little deeper into these deals and maybe think about the real costs and effort involved in getting a vehicle to market and maybe understand a little bit. more how This industry is difficult and complicated, ”said Fisker.

Investors say Fisker Inc shares some characteristics with other young auto startups, such as difficulty raising funds from private investors and optimistic projections for income and profit, as well as production.

Its Ocean prototype is a sleek midsize SUV with a target base price of $ 37,500 and production is slated to begin in late 2022. It will enter a market that will soon be crowded with Tesla’s Model Y, the FN Mustang. Ford Motor’s Mach E, the VW VOWG_p.DE ID.4 and at least half a dozen other brands.

The Ocean’s target price is $ 2,500 below the ID.4, which goes on sale later this year at just under $ 40,000.

In its presentation to investors in July, Fisker Inc said it plans to produce 175,000 cars in 2024, achieving sales of $ 10.6 billion and pre-tax profit of $ 2 billion that year. .

“It’s not just based on the Fisker Ocean. We are also planning other vehicles, ”said Fisker. “That’s a reasonable and good forecast and at the end of the day, it’s a forecast. It is not something that anyone can guarantee.

“When you are a new car maker and especially when making electric vehicles, it is almost impossible to really forecast your sales,” he told Reuters.

ON SCHEDULE

Bill Rinna, director of vehicle forecasts for the Americas at LMC Automotive, predicts that total sales of electric vehicles in the United States in 2024 will only exceed 1 million. Tesla could account for half of that volume, with GM, Ford and VW also taking significant shares, analysts say.

Trade publication Automotive News predicts that nearly 100 new electric and pure-electric hybrid vehicles will go on sale in the United States by 2024.

Fisker Inc enjoys a ‘light asset’ business model that relies heavily on the use of partners for both a vehicle platform and a manufacturing plant – neither of which were locked down before its deal was announced. SPAC in July.

Fisker also said he was negotiating with VW to use his MEB electric car platform and related components for the ocean.

On October 15, Fisker announced a preliminary agreement with Canadian auto parts supplier Magna International MG.TO, which agreed to assemble the Ocean at one of its European factories and provide the mechanical platform for the vehicle. .

In an SEC filing the same day, Spartan Energy warned investors that Fisker and Magna “have not reached a binding final agreement” to build the ocean. The filing also noted that Fisker has not made a deal with VW to use its platform and is still negotiating a parts supply agreement.

When asked if Ocean’s production schedule is still on track, Fisker said, “All I can tell you is that we are on schedule.”

SHARE THE SLIDE

In the aftermath of Nikola’s setbacks, investor concerns about possible red flags for other PSPC-backed auto startups began to hit the stocks of blank check companies.

“When you have no product and no income, it comes down to the story you’re telling,” said Marc Weiser, co-founder of investor RPM Ventures. “In the case of companies with unproven potential, this is pure speculation – and a huge risk.”

Nikola’s shares fell from the June high of $ 93.99 to just $ 16.15 on September 24, but have since recovered slightly to $ 22.24. Shares of Fisker backer Spartan Energy are at $ 12.27, down from a July high of $ 21.58.

Shares of DiamondPeak Holdings DPHCU.O, which backs Lordstown Motors, are down 33% from their September high and Kensington Capital Acquisition Corp KCAC.N, which is behind battery maker QuantumScape, are down 45 %.

Lordstown Motors, two, is hoping to pit his $ 52,500 Endurance electric pickup against rivals Tesla, Ford, General Motors GM.N, Rivian, Nikola and others by the end of next year.

Lordstown and DiamondPeak told investors in September that the truckmaker expected revenue of $ 3.5 billion and pre-tax profit of $ 300 million in 2023.

QuantumScape, a ten-year-old battery start-up, has a promising new solid-state battery cell and financial backing from Volkswagen, but said it is years away from commercial production and significant revenue.

Whether fund managers suspended with blank checks will take a more cautious approach in the post-Nikola environment, despite potential red flags, remains an open question.

But with Nikola as a caveat and Fisker raising additional concerns, some investors have become more picky.

“We will be spending a lot more of our time and focus on companies that are already making revenue or … are expected to generate revenue soon,” Barry Engle, former president of General Motors North America and director of Qell Acquisition Corp, which evaluates EV startups linked.

Report by Ben Klayman and Paul Lienert in Detroit; Edited by David Clarke

Original © Thomson Reuters

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