Electric vehicle start-ups hit speed bumps after heady public floats
19 June, 2021
Several electric auto start-ups that raised large sums from investors in the wake of Tesla’s ascent are hitting potholes as they pursue next-generation vehicles.
The newest crisis occurred at Lordstown Motors, which announced on Monday the sudden departure of two top executives after warning last week it needed more capital to keep operating.
Company officials plan a number of events dubbed “Lordstown Week” later this month to shore up investor support.
But local government officials in Lordstown, Ohio, aren't sure what to make of the business, which had discussed adding a lot more than 2,000 jobs in an area suffering from plant closures.
“Am I confident? Less than I was a week ago,” Lordstown Mayor Arno Hill said. “We’re waiting and seeing what the next thing is.”
There have been similar leadership shake-ups in at least two other electric auto companies that recently went public, raising questions about the transactions and underscoring the difficulties start-ups face in competing in the capital-intensive industry.
“It’s definitely more difficult for a small company,” Jessica Caldwell, executive director of insights at Edmunds.com, said pointing to heavy spending had a need to build and keep maintaining factories and acquire key components.
“It does seem to be like Tesla can be an overnight success story, which is not actually the case,” she told AFP. “However they came in and disrupted the area amongst automotive companies that contain been around for decades. Everyone wants to assume that the dream can happen”
Lordstown’s woes can be found in the wake of significant electric vehicle announcements because the November US presidential election from Ford, General Motors and other auto giants, intensifying competition.
Rising costs
Lordstown Motors was launched by Steve Burns in November 2019 after the acquisition of a recently closedd Ohio auto plant owned by GM.
The business raised $675 million following an October 2020 merger with DiamondPeak Holdings, a special purpose acquisition company (or SPAC, essentially a shell company set up to merge with an operating business).
Lordstown Motors unveiled its flagship “Endurance” all-electric pick-up truck in June 2020 when then-vice president Mike Pence visited its Ohio factory, nearly a year before Ford would present its all-electric F-150 pickup.
Lordstown’s share price topped $30 in February this season, but the company’s fortunes commenced shifting in March, when short-selling firm Hindenburg Research released a damning report that called Lordstown a “mirage”.
On Monday, Lordstown announced the resignation of Mr Burns and chief financial officer Julio Rodriguez after a study concluded Hindenburg’s appraisal was “in significant respects, false and misleading”, while acknowledging that some of its statements about vehicle pre-orders were “using respects, inaccurate”.
That followed Lordstown’s June 8 disclosure that it lacks adequate capital to start commercial production, and warned about its capability to keep operating.
The company’s capital spending had swelled in part from “stress that the Covid-19 pandemic has put on the global automotive supply chain”, according to a securities filing.
Lordstown shares tumbled after Monday’s leadership shake-up, but rallied on Tuesday after its executives reaffirmed plans throughout a Detroit event to get started production in September, pointing to “firm” orders from clients, according to news reports.
In a securities filing on Thursday, Lordstown clarified some of those remarks, saying that purchase agreements “provide us with a substantial indicator of demand” but “do not represent binding purchase orders”.
Unfair advantage?
Lordstown is hardly the only EV prospect to stumble after going public through a SPAC. These kinds of transactions - which allow companies to enter markets quicker than with a traditional initial public offering - have soared in the last year.
Usha Rodrigues, a professor at the University of Georgia School of Law, has described SPACs as a “Vegas wedding IPO” just because a legal loophole gives them protection from lawsuits if their forecasts aren't met - which traditional IPOs usually do not enjoy.
EV start-ups that benefited from SPACs now appear susceptible to turbulence. Nikola suffered its crisis last autumn when its founder suddenly resigned following fraud allegations.
The chief executive and co-founder of Canoo resigned in April, while Lucid Motors in February delayed production of its EV sedan days after announcing a transaction valuing the business at $11.75 billion.
Going public through a SPAC may have resulted in some companies getting funds “before they deserved it”, Karl Brauer at Carexpert.com said. “While there’s nothing wrong with the SPAC process itself, if it contributes to premature funding of a company, it’s much more likely the business will fail.”
Tesla needed 15 years to be profitable, Mr Brauer said, adding “that is a long, dedicated process, one you can’t short cut with an instant infusion of cash”.
Source: www.thenationalnews.com
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