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Business

EV manufacturers are facing a cash crunch amid high battery, production costs




Production of electric Rivian R1T pickup trucks on April 11, 2022 at the company’s plant in Normal, Illinois.

Michael Wayland/CNBC

In the transition from gas-powered vehicles to electrics, the fuel every automaker is looking for these days is cold hard cash.

Both established car manufacturers and startups are rolling out new battery-powered models in an attempt to meet growing demand. Ramping up production of a new model was already a demanding and expensive process, but rising material costs and difficult regulations for federal incentives are further straining the coffers.

Prices of the raw materials used in many electric vehicle batteries ̵[ads1]1; lithium, nickel and cobalt – have risen in the past two years as demand has soared, and it could be years before miners are able to meaningfully increase supply.

To further complicate the situation, new US rules governing incentives for electric car buyers will require automakers to buy more of these materials in North America over time if they want their vehicles to qualify.

The result: new cost pressure for what was already an expensive process.

Automakers routinely spend hundreds of millions of dollars designing and installing tooling to build new high-volume vehicles—before a single new car is shipped. Almost all global automakers now have large cash reserves of $20 billion or more. These reserves exist to ensure that the companies can continue work on their next new models if and when a recession (or a pandemic) takes a bite out of their sales and profits for a few quarters.

All that money and time can be a risky bet: If the new model doesn’t catch on with customers, or if production problems delay its introduction or compromise quality, the automaker may not make enough to cover what it spent.

For newer automakers, the financial risk of designing a new electric vehicle can be existential.

Take Tesla. As the automaker began preparations to launch its Model 3, CEO Elon Musk and his team planned a highly automated Model 3 production line, with robots and specialized machines that reportedly cost well over a billion dollars. But some of the automation didn’t work as expected, and Tesla moved some final assembly tasks to a tent outside the factory.

Tesla learned many expensive lessons in the process. Musk later called the experience of launching the Model 3 “production hell” and said it nearly brought Tesla to the brink of bankruptcy.

As newer EV startups ramp up production, more investors are learning that taking a car from design to production is capital intensive. And in the current environment, where deflated stock prices and rising interest rates have made raising money more difficult than it was just a year or two ago, EV startups’ cash balances are getting a lot of attention from Wall Street.

Here’s where some of the most prominent US EV startups in recent years stand when it comes to cash:

Rivian

Production of electric Rivian R1T pickup trucks on April 11, 2022 at the company’s plant in Normal, Illinois.

Michael Wayland/CNBC

Rivian is by far the best positioned of the new EV startups, with over $15 billion on hand at the end of June. That should be enough to fund the company’s operations and expansion through the planned launch of its smaller “R2” vehicle platform in 2025, Chief Financial Officer Claire McDonough said during the company’s Aug. 11 earnings call.

Rivian has struggled to ramp up production of its R1 series pickup truck and SUV amid supply chain problems and early production challenges. The company burned about $1.5 billion in the second quarter, but it also said it plans to reduce its short-term capital spending to about $2 billion this year from the $2.5 billion in its previous plan to ensure it can meet its long-term goal.

At least one analyst thinks Rivian will need to raise cash well before 2025: In a note after Rivian’s earnings report, Morgan Stanley analyst Adam Jonas said the bank’s model assumes Rivian will raise $3 billion via a secondary stock offering before the end of next year and another $3 billion via further increases in 2024 and 2025.

Jonas currently has an “overweight” rating on Rivian’s stock, with a price target of $60. Rivian ended trading Friday at about $32 a share.

Sure

People test drive the Dream Edition P and Dream Edition R electric vehicles at the Lucid Motors facility in Casa Grande, Arizona, on September 28, 2021.

Caitlin O’Hara | Reuters

Luxury EV manufacturer Lucid Group doesn’t have quite as much cash in reserve as Rivian, but it’s not badly placed. It ended the second quarter with $4.6 billion in cash, down from $5.4 billion at the end of March. That’s enough to last “well into 2023,” CFO Sherry House said earlier this month.

Like Rivian, Lucid has struggled to increase production since the launch of its Air luxury sedan last fall. It plans major capital expenditures to expand its Arizona factory and build a second factory in Saudi Arabia. But unlike Rivian, Lucid has a deep-pocketed patron — Saudi Arabia’s sovereign wealth fund, which owns about 61% of the California-based electric car maker and will almost certainly step in to help if the company runs short of cash.

For the most part, Wall Street analysts were unconcerned about Lucid’s cash burn in the second quarter. Bank of America’s John Murphy wrote that Lucid still has “runway into 2023, especially given the company’s recently secured revolver [$1 billion credit line] and incremental funding from various entities in Saudi Arabia earlier this year.”

Murphy has a “buy” rating on Lucid’s stock and a $30 price target. He has compared the startup’s potential future profitability to that of luxury sports car manufacturer Ferrari. Lucid currently trades for around $16 per share.

Fisherman

People gather and take pictures after the Fisker Ocean all-electric SUV was revealed at the Manhattan Beach Pier on November 16, 2021 in Manhattan Beach, California.

Mario Tama | Getty Images

Unlike Rivian and Lucid, Fisker does not plan to build its own factory to build its electric vehicles. Instead, the company founded by former Aston Martin designer Henrik Fisker will use contract manufacturers – global automotive supplier Magna International and Taiwan’s Foxconn – to build its cars.

That represents something of a cash trade-off: Fisker won’t have to spend nearly as much money upfront to get its upcoming Ocean SUV into production, but it will almost certainly give up some profits to pay manufacturers later.

Production of the sea is scheduled to start in November at an Austrian factory owned by Magna. Fisker will have significant expenses in the interim — money for prototypes and final engineering, as well as payments to Magna — but with $852 million on hand at the end of June, it should have no trouble covering those costs.

RBC analyst Joseph Spak said after Fisker’s second-quarter report that the company will likely need more money, despite the contract manufacturing model — what he estimated at about $1.25 billion over “the coming years.”

Lever has an “outperform” rating on Fisker’s stock and a $13 price target. The stock closed Friday at $9 a share.

Nicholas

Nikola Motor Company

Source: Nikola Motor Company

Nikola was one of the first electric car manufacturers to go public via a merger with a special purpose acquisition company, or SPAC. The company has begun shipping its battery-electric Tre semi truck in small numbers, and plans to ramp up production and add a long-range fuel cell version of the Tre in 2023.

But right now it probably doesn’t have the money to get there. The company has had a tougher time raising funds, following allegations by a short seller, a drop in its stock price and the ouster of its outspoken founder Trevor Milton, who now faces federal fraud charges over statements to investors.

Nikola had $529 million on hand at the end of June, plus an additional $312 million available through an equity line from Tumim Stone Capital. That’s enough, CFO Kim Brady said during Nikola’s second-quarter earnings call, to fund operations for another 12 months — but more money will be needed before long.

“Given our goal of maintaining 12 months of liquidity available at the end of each quarter, we will continue to seek appropriate opportunities to replenish our liquidity on an ongoing basis while seeking to minimize dilution to our shareholders,” Brady said . “We are carefully considering how we can potentially spend less without compromising our critical programs and reducing cash requirements for 2023.”

Deutsche Bank analyst Emmanuel Rosner estimates that Nikola will need to raise between $550 million and $650 million before the end of the year, and more later. He has a “hold” rating on Nikola with a price target of $8. The share trades for 6 dollars at Friday’s closing time.

Lordstown

Lordstown Motors gave tours of prototypes of its upcoming electric Endurance pickup on June 21, 2021 as part of its “Lordstown Week” event.

Michael Wayland/CNBC

Lordstown Motors is in perhaps the most precarious position of the lot, with just $236 million on hand at the end of June.

Like Nikola, Lordstown saw its share price collapse after its founder was forced out following a short seller’s fraud allegations. The company moved away from a factory model to a contract manufacturing arrangement like Fiskers, and it finalized a deal in May to sell its Ohio factory, a former General Motors facility, to Foxconn for a total of about $258 million.

Foxconn plans to use the factory to produce electric cars for other companies, including Lordstown’s Endurance pickup truck and an upcoming small Fisker EV called Pear.

Despite the significant challenges ahead for Lordstown, Deutsche Bank’s Rosner maintains a “hold” rating on the stock. But he is not sanguine. He believes the company will need to raise $50 million to $75 million to fund operations until the end of this year, despite the decision to limit the first production batch of the Endurance to just 500 units.

“More importantly, to complete production of this first batch, management will need to raise more significant capital in 2023,” Rosner wrote after Lordstown’s second-quarter earnings report. And given the company’s struggles so far, it won’t be easy.

“Lordstown would need to demonstrate significant traction and positive reception for Endurance with its first customers to raise capital,” he wrote.

Rosner rates Lordstown’s stock a “hold” with a price target of $2. The stock closed Friday at $2.06.



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