BYDDY - The EV Start-Up Graveyard And The Walking Dead

2024-03-26 01:43:44 ET

Summary

• Many EV start-ups that were once valued at billions of dollars are now bankrupt (EV graveyard) or on the verge of bankruptcy (The Walking Dead).
• The failure of these companies can be attributed to unrealistic valuations, inability to bring EVs to market, poor financial management, and unrealistic revenue forecasts.
• More than $175 billion was lost by investors in the 19 EV start-ups profiled.
• The EV investing landscape has changed dramatically in the last three years.
• Legacy automakers, along with Tesla, now control the EV market, leaving the start-ups behind.

Three years ago, in May 2021, I published an overview of the EV investment landscape ( New Electric Vehicle Investment Roadmap ) highlighting the exceptional and most likely unrealistic valuations and revenue forecasts of more than 15 EV start-ups that recently had gone public, mainly through SPACs. These companies had no assets besides the cash they raised, little unique technology, and no manufacturing capability. Yet they were valued at billions of dollars. At the time, many of these went public through SPACs and were permitted to publish unfounded projections to justify these lofty valuations.

At that time, the EV market's battleground was seen as a three-way battle between these exciting startups against the most likely too-slow Legacy auto companies, with the clear leader Tesla ready to battle them all. The press, news shows, and stock analysts favored the new EV start-ups. Over the last three years, the battle of these start-ups has been lost. Most are bankrupt (Dead) or on life support (The Walking Dead). They are no longer active threats in the EV market. The EV battle has changed. The legacy automakers will battle it out with themselves, just as they do now with internal combustion vehicles, and also battle Tesla.

This has also vastly changed the EV investment roadmap. In this article, I define a new EV investment roadmap that eliminates most pure-play EV start-up investment opportunities. It shifts the EV investment focus to Legacy auto companies and Tesla.

Why did all these highly touted and presumably well-financed companies with such high hopes fail? There are several reasons, most of which should have been anticipated at the time:

1. SPACs turned out to be more of a gimmick to make money for those who created them than a realistic valuation of the businesses they "took public."
2. These start-up EVs had a daunting task ahead that was vastly underestimated. They had to design vehicles, develop battery technology, build manufacturing facilities, do extensive testing and get approvals, and create distribution and sales channels. Doing all of this proved to be too much for them.
3. They started well-funded, and to beat all the other start-ups to market, they moved fast and spent a lot of money—too fast. It took much longer, and they all ran out of money. Perhaps they anticipated that additional funds would be easy to raise, but it wasn't, as capital markets shut down to them.
4. They hyped this potential success with totally unrealistic revenue forecasts. Making unrealistic forecasts is one thing but believing them yourself can be fatal.
5. Finally, most lacked the leadership and governance needed to anticipate and avoid these problems.

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