EV makers on the brink of a shakeout, experts say

Just months after the electric car manufacturer Lucid went public in the summer of 2021, the company’s value shot up to almost 91 billion dollars. Fisker, another EV start-up, also saw its value rise — to about $8 billion — after its IPO in November 2020. Electric truck maker Rivian, meanwhile, hit $127 billion after going public in fall 2021.

But none have been able to sustain those swells, each seeing their market values ​​deflate 75 percent or more as of Wednesday. This week, each reported heavy losses and dwindling cash.

It shouldn’t be surprising that these companies are burning through cash and piling up losses, industry observers note. Although startups rarely turn a profit in the early days, such automakers struggle with unique costs and production challenges not seen in other industries, such as software. Tesla reported its first full-year earnings in 2020 — nearly two decades after it was founded.

Some analysts say the recent round of earnings by EV companies suggests the industry is poised for an overhaul, with some companies emerging as clear winners and others disappearing — much like the earliest days of the auto industry in the early 20th century. At the time, entrepreneurs were rushing into auto manufacturing across the country, said Michelle Krebs, an executive analyst at Cox Automotive. “And in the end there was a shakeout of just a few players, and it happened to be in Michigan,” she said, referring to Ford, General Motors and Chrysler.

“It’s deja vu,” Krebs added, referring to the current rush of entrants into the electric car market. “It’s going to be a shakeout.”

Electric vehicle makers face challenges, including increasingly limited opportunities for financing due to higher interest rates, as well as competition from older automakers, which can subsidize their EV business losses with revenue from sales of gas-powered vehicles, analysts said. For example, Ford said in March that its EV business would take a loss of $3 billion, but the company would still post an overall profit of as much as $11 billion.

“New players always underestimate how much it costs to start a car company,” Krebs said. “It will surely be wrong because so many have started up and times have drastically changed.”

Venkatesh Prasad, senior vice president of research at the Center for Automotive Research, said EV start-ups are seeing opportunities for outside capital dwindle as interest rates rise — and they also face stiff competition from established automakers that can scale their products more quickly to meet demand. . “And so with start-ups you have both risk and uncertainty happening at the same time,” he said.

On Monday, Lucid reported a loss of more than $779 million in the first three months of 2023, compared with a loss of more than $81 million in the same quarter last year. Cash on hand fell to $900 million, compared with the more than $1.7 billion reported at the end of 2022. The company also said it planned to produce more than 10,000 vehicles — on the lower end of previous guidance.

A day later, Fisker reported a $120 million loss for the first three months of 2023 and said it burned through $84 million in cash. The company cut this year’s production target to between 32,000 and 36,000, down from the 42,400 previously forecast.

On Tuesday, Rivian reported a loss of $1.3 billion for the first three months of the year. It is more liquid than its competitors, ending the quarter with about $11.2 billion in cash and cash equivalents.

Lordstown Motors, which builds an electric truck, said this month it would stop production of its vehicles, noting in a filing that it could go bankrupt if it doesn’t find additional financing. Nikola, an electric truck maker, said it would also halt production after reported mounting losses.

This factory in the Midwest was dead. Electric vehicles revived it.

Dan Ives, a Wedbush analyst who covers the EV market, says it’s been an uphill battle for EV start-ups to sell and manufacture vehicles to keep up with demand.

“With capital significantly more expensive today [and] an upward-moving interest rate environment, we see more EV players being squeezed — especially as Tesla, GM, Ford and other stalwarts aggressively pursue electric vehicles and dive into the deep end of the pool,” Ives said.

In April, Tesla reported a profit of more than $2.5 billion in the first three months of this year, down 24 percent from the same period last year. Since CEO, Elon Musk, took over Twitter in October, some investors have worried about the automaker’s ability to remain dominant, and competitors have tried to gain a foothold in the market as Musk focuses on trying to make his social media company successful.

Ives said clear winners will emerge in addition to Tesla, and despite the stumbles, Rivian and Lucid remain in a position for success. Rivian has the best potential to be a “mini Tesla-like ecosystem,” he said.

“There’s a lot of chopping to get there,” Ives added. And Wall Street is “sick of excuses for their dog-eat-dog homework[s] for lack of production.”

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