The love at first sight between investors and fledgling electric car makers seems to have died.
As is often the case in any relationship, the beginning is marked by big promises. Everything seems beautiful, everything seems easy. Few important questions are asked, because there is hope that we have drawn the right number to turn a blind eye to things that would normally warn us to slow down.
We look forward to a better tomorrow until something happens that derails the whole beautiful machine. Then we open our eyes and start asking questions that we should have asked from the very beginning.
This is a situation in which investors and Tesla (TSLA) – Get Tesla Inc Competitor Report now found.
Looks like it’s time to ask the uncomfortable questions.
Rivian
Stocks fell on the stock market
With the exception of Lucid Group (LCD) – Get the Lucid Group, Inc. report. and Fisker Inc. (FSR) – Get the Fisker Inc Class A report, shares of most of these firms are Rivian (RIVN) – Get the Rivian Automotive, Inc. report. class A, Nikola (NKAR) – Get the report of Nikola Corporation, Lordstown Motors (THE TRIP) – Get the Lordstown Motors Corp. report. Class A and Hyliion Holdings (HILN) – Get the Hyliion Holdings Corp. report. class A – failed after the jump. The prices for these shares are now below the IPO price. And not the fact that they will recover in the near future.
Most of these firms entered the market through a reverse merger with a Specialized Acquisition Company (SPAC). Typically, SPACs have an initial offering price of $10, consisting of a share of capital and a warrant, with the shares able to rise significantly once the sponsors disclose the purpose of the merger.
Rivian shares are currently trading at $47.37, down 39.2% from the November 10 IPO price of $78. In complete euphoria, the SUV and electric pickup maker’s shares rose to $172.01 on November 16, a week after its first stock market debut.
As for electric and hydrogen truck maker Nikola, its shares have lost at least 33.6% of their market value from their $10 IPO price.
Things are even worse for Lordstown Motors and Hyliion.
Lordstown stock just collapsed. From $10 when it debuted in October 2020, it is currently trading at $2.18, down 78.2%. The stock market valuation fell from $1.6 billion to $428.3 million last Friday at the close of trading. In fact, nearly $1.1 billion in market capitalization disappeared in 17 months.
Lordstown Motors has yet to produce an electric vehicle, but the company continues to burn cash and needs it to solve its production problems.
Shares of hybrid and electric truck maker Hyliion are currently trading at $3.77, down 62.3% from their IPO price.
Nikola
Why did investors fall in love with these startups?
Proponents of electric vehicle manufacturers like to say that these companies represent a promise, a promise of society’s transition to a carbon-free world. Thus, investing in these companies is an investment in the future.
Therefore, you should not focus on their current income or lack of income. We need to close our eyes to the money these companies are burning and focus on potential future earnings.
To further convince, they take an example from Google (google) – Get the Alphabet Inc. report. Class A, AmazonAMZN) – Get the Amazon.com, Inc. report. and Facebook (FB) – Get the Meta Platforms Inc. report. Class A in its infancy. They acknowledge that this is a very risky investment, but the potential is too great to ignore.
A study by Mordor Intelligence suggests that the electric vehicle market is expected to be worth $725 billion by 2026. The industry is currently valued at $171 billion, indicating an attractive CAGR of around 30%. Electric vehicle sales are projected to rise from about 2.5 million in 2020 to about 11 million in 2025. At this level, electric vehicles will account for approximately 32% of the total market share of new car sales.
“The electric vehicle (EV) market is experiencing significant growth due to the rapidly increasing year-on-year adoption rate of electric vehicles around the world,” the study says. “For example, China and Europe saw a sharp increase in sales of electric vehicles despite the pandemic showing signs of strong market growth during the forecast period.”
According to the study, factors such as rising fuel costs and government initiatives in different regions to increase awareness of electric vehicles are expected to drive the use of electric vehicles over the forecast period.
“Charging infrastructure continues to expand and countries like China continue to lead the passenger car and city bus market with a well-established battery supply chain.”
Lordstown
What’s wrong with these young actors?
This is a bit like a wake-up call for most of these firms. There are those, like Lordstown, who still have not managed to build a single car and have already pushed back the start date several times.
At the same time, the company is always in need of money, and it is not known if it will ever deliver on its promises. We are still waiting for the famous Endurance EV pickup that has been promised for several years.
For other of these firms, they are confronting the harsh reality of capacity building and the bottlenecks it causes. Investors want Nicola and Rivian to demonstrate that they can mass-produce cars and sell them to customers.
Added to this was Rivian’s image crisis, a self-inflicted wound. In essence, Rivian decided overnight, without warning its customers, to raise the prices of two of its models, the R1T electric pickup and the R1S electric SUV, both for customers who had already placed their order and for new customers.
Customers took it badly, and the company recorded the cancellation of orders. CEO RJ Scaringe was forced to publicly apologize.
“I have made many mistakes since I launched Rivian over 12 years ago, but this one was the most painful,” Scaringe wrote in a letter to clients.
“I sincerely regret and intend to restore your trust.”