EV Companies Went Public With Big Plans. They’re Quickly Hitting Snags.


Over the past year, the stock market has been deluged with newly public electric-vehicle startups that raised money by pitching plans for rapid growth.

Months into their lives on the public markets, a set of these companies are missing targets, adding costs and, in one case, upending major parts of a business model.

On March 29, aspiring electric car and truck maker Canoo Inc. told investors it was abandoning or scaling back numerous key aspects of the strategy laid out when it raised $630 million last year.

On March 30, five-year-old electric-vehicle battery maker Romeo Power Inc. said it expected that revenue for the year would be no more than $40 million. That is far shy of the $140 million projected when it raised hundreds of millions of dollars from investors last year.

Lordstown Motors Corp. disclosed in mid-March that its capital expenses through the end of 2022 would be more than double the amount projected last year when the electric-pickup-truck startup raised $780 million from investors.

A fourth, electric-vehicle company XL Fleet Corp., said on March 31 it was facing problems because of the “ongoing impacts” of Covid-19 on the truck market and wouldn’t provide formal guidance about its 2021 revenue.

The company previously told investors it expected 2021 revenue to more than triple to $75 million; its first-quarter revenue is expected to be $1 million, flat from the year before.

All four companies characterized the challenges as surmountable and told investors they still expect robust demand and growth in years to come. Investors were less sanguine: The stocks of all four companies fell on the developments, ranging from a 12% drop for XL Fleet to a 21% decline for Canoo the day after the announcements.

The revelations so soon after the companies’ listings illustrate that quickly building new auto giants from scratch can be more challenging than many of the companies had projected. All four announced the struggles on their first quarterly conference calls as public companies.

Just months earlier, the companies outlined their plans for rapid growth to investors in slideshow presentations that all featured charts showing fast-rising revenue and profits.

“These companies are finding it is harder to actually take that PowerPoint slide and get a product out of it than was envisioned,” said Jon Lopez, an analyst at investment bank Vertical Group.

“If you’re having to reposition or pivot already, what’s going to happen in three years or five years?” he asked, noting there would then be far more competition from traditional auto makers.

Ever since Tesla Inc.’s stock took off mid-last year, the electric-vehicle space has been a searing hot sector, as investors have hunted for companies they hope to replicate the electric-car pioneer’s stock-market success.

Backers believe a rapid pivot to electric cars should open the door for new brands.

While there has been a pullback in share prices in recent weeks, the trend was aided by a boom of special-purpose acquisition companies. A SPAC is a Wall Street tool that allows companies with no assets beyond cash to merge with private companies and bring those companies onto the stock market.

At least 22 electric vehicle and battery companies have struck deals to go public through SPACs in the past year, raising more than $17 billion from investors, according to data from Baris Guzel, a principal at BMW i Ventures, a venture capital investor funded by BMW AG. That group includes several companies that have yet to complete their mergers, including Lucid Motors Inc. and Faraday Future.

Helping fuel the SPAC boom is a practice that allows startups to publicly disclose revenue and profit projections — strongly discouraged by regulations in the traditional route of going public but allowed in SPACs.

These projections have helped the young electric-vehicle companies achieve multibillion-dollar valuations, even before many of them have generated any revenue.

Ohio-based Lordstown went public in a merger with a SPAC in October, pledging that it would be able to make a new pickup truck faster and cheaper than is standard because it had acquired a former General Motors Co. car factory at a low price.

Last month Lordstown told investors the costs would be higher than initially expected and said it would spend at least $300 million on capital expenses between 2020 and 2021, up from the $135 million initially forecast.

The company said it faced some supplier shortages and wanted to accelerate production, which is scheduled to begin in September.

Lordstown also said then that the Securities and Exchange Commission had opened an inquiry relating to preorders of its vehicles.

The statement came soon after a short seller, Hindenburg Research, issued a report that alleged that Lordstown misled investors about the strength of its truck preorders, among other criticisms.

Lordstown told investors last month that it was cooperating with the SEC inquiry. CEO Steve Burns has previously denied that the company misrepresented its preorder book and said the short seller’s report contained half-truths and lies.

The company declined to comment for this article.

Canoo went public soon after Lordstown in a December SPAC merger.

The four-year-old company based in Los Angeles pitched itself to investors last year by highlighting its business plan of not only developing cars but selling parts and engineering services to other auto makers.

Canoo boasted to investors of its “innovative subscription business model” in which it would lease vehicles directly to consumers a month at a time.

The company told investors a deal to jointly build car components with Hyundai Motor Co. showed “external validation of our technical leadership” in the sector.

On March 29, Canoo’s executive chairman, Tony Aquila, announced strategic shifts on a conference call that included awkward exchanges with analysts, including one in which he was asked whether Ulrich Kranz was still the chief executive officer.

Mr. Aquila said Mr. Kranz, who wasn’t on the call, was “still currently the CEO.”

The company’s CFO and its head of corporate strategy, both of whom helped market the company to investors last year, recently departed.

Mr. Aquila said the subscription model would be less than 20% of the company’s business, given the high costs of building and owning so many cars itself.

Canoo intends to move away from its plan to engineer car components for other companies, he said, as the practice “is just really not going to drive the best shareholder value.”

Finally, Mr. Aquila said Canoo now plans eventually to make its own factories. That emphasis reflects a departure from its prior approach, which the company called an “asset-light, flexible manufacturing strategy” that relied on third-party manufacturers.

Mr. Aquila joined the company in his role in October, well after the earlier business plan had been created.

“I wasn’t here when they did the original model,” he told analysts on March 29.

He added that he “wanted to get ahead of this and explain to you how this really is going to work.”



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