After SPAC Mania, Electric-Vehicle Startups Face a Cash Squeeze

 
image

(Bloomberg) — Two years into the SPAC merger boom for electric-vehicle startups, companies are having a tough time finding cash to actually produce cars.

First Lordstown Motors Corp. said it would back off investing in the tools to build its electric trucks until capital markets loosen up. Two days later, EV Startup Canoo Inc. issued a Going Concern notice to alert investors warning that it could run out of cash.

Without more money, some face the real danger of not making it. Those that can raise money could end up paying a lot more for it or just not getting as much as they need.

“The story has changed,” said Bloomberg Intelligence analyst Joel Levington. “These companies are burning huge amounts of cash. Every day that the market goes down their liquidity gets more challenged.”

The problem, Levington said, is that convertible debt for many of the smaller EV companies with little or no revenue is costing more than 10%. They can’t issue much secured debt because they lack hard assets to put up as collateral. With stock prices depressed, issuing equity will be very dilutive to existing shareholders.

Canoo is the most recent company to report a potential liquidity crunch. The company said on May 10 that it has lined up $300 million in funding from existing shareholders and an equity purchase agreement with Yorkville Advisors, along with filing for a $300 million shelf offering. That pads a cash reserve that was just $104.9 million on March 31.

Burn Rate

The company will likely need a lot more. Bloomberg Intelligence forecasts that Canoo will burn through a total of $1.1 billion this year and in 2023, which means it will have to keep trying to raise funds.

Just two months ago, Chief Executive Officer Anthony Aquila said his company was “very focused” on avoiding dilution. Aquila said in March that Canoo was instead looking at asset-backed loans and working-capital credit lines — options he didn’t mention on its first-quarter earnings call this week.

Lordstown Motors, meanwhile, is delaying plans for its Endurance pickup truck. The company reined in a goal to raise $250 million this year, saying that it will seek $150 million instead.

“As you all well know, the capital markets have not been open for the sector, notwithstanding we continue to work with our advisers on available financing alternatives,” Adam Kroll, Lordstown Motors’ chief financial officer, said on the startup’s first-quarter earnings call on May 9. “However, with our options limited at the moment, we are taking a balanced and disciplined approach to allocating our current capital.”

Without that funding, the cost to make its Endurance pickup will be “significantly higher” than the sale price, President Edward Hightower told analysts on the call.

More Yorkville

Lordstown struck a deal in 2021 to sell up to $400 million worth of stock through an investment fund managed by Yorkville — the same firm now working with Canoo — but the decline in the startup’s stock price squeezed the amount of money it can make from that agreement.

Instead, Lordstown decided late last year to sell the Ohio factory it bought from General Motors Co. to Hon Hai Precision Technology Co., or Foxconn, for $230 million. That deal gave the company a lifeline. The Taiwanese maker of Apple Inc.’s iPhone also invested $55 million in a joint venture that will help Lordstown develop future products, but the company will need to raise more cash on its own.

Most of the EV startups that went public during the SPAC wave now find themselves back in a tenuous financial position, similar to where they were before their mergers.

Cash Infusion

Canoo had just shy of $150 million in cash in the quarter before its merger in December 2020. Faraday Future Intelligent Electric Inc. had $2 million at the end of 2020 before it revealed its own SPAC combination in January 2021.

Mergers changed their fortunes, at least for a little while. Canoo raised around $600 million, Faraday Future around $1 billion and Lordstown around $675 million. And this all happened quickly, since the mergers took just a few months versus the more protracted process of a traditional IPO.

At least one, though, was able to take advantage of the high-flying optimism while it lasted. Car designer Hernik Fisker’s eponymous startup, Fisker Inc., added $625 million to its $1 billion SPAC merger war chest last August by offering convertible notes when rates were lower.

Still, CFO Geeta Gupta-Fisker said this month that while the company had enough cash to get its Ocean SUV to market, the carmaker would still need to raise more money. The company is looking at bank debt or selling zero-emissions credits to conventional carmakers.

“We are talking to several banks to see what we can do with respect to working capital,” Gupta-Fisker said on the company’s earnings call.

Even if these companies can hang on through the current volatility in the market, they all still have a long way to go to find the $23.5 billion Tesla Inc. raised, not to mention a decade of gross profits that funded development.

Tesla CEO Elon Musk said at a conference this week that starting a car company “is mega pain.”

“It’s the furthest thing from easy money you could possibly imagine,” he said.

When asked if he had advice for other EV startups, Musk said: “Make sure you’ve got a lot of reserve capital and then gradually build up from the dumb things that you do at the beginning and be less dumb over time — otherwise what will happen is vast losses of money.”

©2022 Bloomberg L.P.

 
Trending Ideas

Featured Stocks On The Move

Daily Rundown
  • Sportswear, Blockchain, Medical, E-commerce

    On Holding AG (ONON) On Holding AG is a premium sportswear company specializing in high-performance running shoes and apparel. Known for its innovative cushioning technology, the company caters to athletes... Read More

  • Chemicals, Venture, Energy, Insurance

    Flexible Solutions International Inc. (FSI) Flexible Solutions International Inc. develops and manufactures biodegradable and environmentally safe chemicals. The company specializes in water and energy conservation products, serving industries like agriculture... Read More

  • Data, Blockchain, Education, Semiconductors

    LiveRamp Holdings, Inc. (RAMP) LiveRamp Holdings, Inc. specializes in data connectivity and analytics, helping businesses unify customer data for personalized marketing strategies. Its platform enables secure data sharing and drives... Read More

  • Services, Renewable, Batteries, Midstream

    Ranger Energy Services, Inc. (RNGR) Ranger Energy Services, Inc. provides well service solutions to the oil and gas industry. The company specializes in high-spec rigs, well maintenance, and completion services,... Read More

  • Analytics, Manufacturing, Appliances, Energy

    ExlService Holdings, Inc. (EXLS) ExlService Holdings, Inc. is a leading provider of data analytics and digital operations solutions. The company helps businesses enhance decision-making, streamline operations, and achieve transformative growth... Read More

  • Wellness, Energy, Construction, Exploration

    LifeVantage Corporation (LFVN) LifeVantage Corporation is a wellness company focusing on nutrigenomics to improve health and longevity. It offers science-backed dietary supplements and skincare products aimed at optimizing health and... Read More

  • Housing, Biotech, Technology, E-commerce

    Fannie Mae (FNMA) Fannie Mae provides liquidity and stability to the U.S. housing market by purchasing mortgages from lenders, enabling them to offer more loans. The company plays a critical... Read More

  • Aviation, Medical, Biotech, Biopharmaceutical

    FTAI Aviation Ltd. (FTAI) FTAI Aviation Ltd. specializes in acquiring, leasing, and managing aviation assets, including aircraft and engines. The company provides innovative solutions to airlines and operators, optimizing performance... Read More



Top 3 Stocks in Leading Sectors
  • 3 Technology Stocks To Buy Now

    BTC Digital Ltd. (BTCT) BTC Digital Ltd. is engaged in cryptocurrency mining and blockchain technology development. The company leverages advanced infrastructure to produce digital assets and support the growth of... Read More

  • 3 Distribution Stocks To Buy Now

    DNOW Inc. (DNOW) DNOW Inc. is a leading distributor of energy and industrial products, offering supply chain solutions and services. Serving oil, gas, and industrial sectors, the company ensures operational... Read More

  • 3 Energy Stocks To Buy Now

    EQT Corporation (EQT) EQT Corporation is a leading natural gas producer, operating in the Appalachian Basin. The company leverages advanced technologies to optimize energy production and deliver sustainable solutions to... Read More

  • 3 Consumer Stocks To Buy Now

    Playa Hotels & Resorts N.V. (PLYA) Playa Hotels & Resorts N.V. owns and operates all-inclusive beachfront resorts in prime locations across the Caribbean and Mexico. The company offers luxurious accommodations,... Read More

  • 3 Aviation Stocks To Buy Now

    Kratos Defense & Security Solutions, Inc. (KTOS) Kratos Defense & Security Solutions, Inc. specializes in developing and deploying advanced defense technologies, including unmanned systems, satellite communications, and cybersecurity solutions. The... Read More

  • 3 Apparel Stocks To Buy Now

    V.F. Corporation (VFC) V.F. Corporation is a global leader in branded lifestyle apparel, footwear, and accessories. With a diverse portfolio of iconic brands like Vans, The North Face, and Timberland,... Read More

  • 3 Defense Stocks To Buy Now

    FTAI Aviation Ltd. (FTAI) FTAI Aviation Ltd. focuses on acquiring, leasing, and managing aviation-related assets, such as aircraft and engines. The company provides tailored solutions to airlines and operators, ensuring... Read More

  • 3 Energy Stocks To Buy Now

    Antero Resources Corporation (AR) Antero Resources Corporation is a leading natural gas and liquids exploration and production company. Operating primarily in the Appalachian Basin, the company focuses on responsible energy... Read More