Opinion: if there were a “Big Three” of electric vehicle manufacturers, who would join Tesla?

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When Henry Ford reorganized his Detroit Automobile Company into what would become the heavyweight in American auto manufacturing, hundreds of other young auto makers also started up.

One of them, the National Motor Vehicle Car Manufacturing Co, started in Indianapolis, which had six automakers in 1906. National Motor even competed and won the Indy 500 of 1912. Sales skyrocketed and production skyrocketed. increased, but after a merger with Associated Motor Industries in 1922, the company went into receivership in 1924. Like hundreds of other automakers, none of these six Indianapolis players survived.

Investors eyeing the electric vehicle space today may get a feeling of déjà vu. The large number of companies, large and small, currently working on electric vehicles or their components is reminiscent of the turn of the 20th century, when companies like National and others experimented with body shapes and types of engines, steam to internal combustion through the first versions of electric vehicles.

In the stock market crash of 1929, there were only about 40 automakers left, and that number eventually declined to where America’s biggest companies are called the “big three.” Similar upheavals have taken place globally, with the emergence of the Big Three in other countries, such as Japan and Germany.

A major difference between then and now, said Brett Smith, director of technology research at the Center for Automotive Research, or CAR, is that 100 years ago, “everyone was starting from scratch, no one had more ”, when today, automakers already know how to build cars and create huge assembly lines.

“Over the next 5 years, some of these companies will experience remarkable growth. But there will be some who don’t grow up and struggle. There is more reason to be optimistic with these companies than there was five years ago as the technology moves closer to wider adoption. The problem is that traditional automakers have also jumped in and the competition is tougher.


– Brett Smith, Director, Technology Research, Center for Automotive Research

The question for investors is then to know which companies will become the big 3 of electric vehicles?

The company with the biggest advantage in electric vehicles today is Tesla Inc. TSLA,
-0.20%,
who finally proved to the world that EVs are the future. As rival startups and traditional automakers seek to emulate its success, investors must ask which EV companies will succeed and which will disappear.

Also read: Electric vehicles are gaining ground, but you could still drive a gasoline car in 2035.

Globally, hundreds of startups are working on some aspect of electric vehicles, from the creation of the car, to the infrastructure of charging stations, to improving the manufacturing process, to the development of new technologies. battery and fuel cell work. CB Insights of New York said it tracks more than 700 startups around the world that are active in space.

“There seems to be a new one every day,” said CAR’s Smith.

Since February, the stocks of many more well-known startups have lost much of their value due to serious issues including regulatory inquiries or inquiries, class actions, management turmoil, and abrupt executive departures. Adding to these woes – which stem mostly from over-promises and under-deliveries – is a semiconductor shortage that is hampering efforts to release first products.

Several publicly traded electric vehicle manufacturers are still technically start-ups with no revenue or operational history. But due to the SPAC boom and the de-SPAC process, they are now publicly traded companies, letting investors make bets like venture capitalists on the next Tesla.

“What they’re doing is very difficult,” Smith said. “Over the next 5 years there will be remarkable growth for some of these companies. But there will be some who don’t grow up and struggle. There is more reason to be optimistic with these companies than there was five years ago as the technology moves closer to wider adoption. The problem is that traditional automakers are also getting started now and the competition is tougher. “

Due to some of these issues, no income is expected for the remainder of the year at Nikola Corp. NKLA,
+ 2.32%,
Lordstown Motors Corp. WRINKLED,
+ 2.67%,
and Fisker Inc. FSR,
+ 5.39%,
the three companies predicting their first vehicles sometime in 2022, if their current predictions can be believed.

“I know it sounds like a broken record and it’s boring, but I think in this case the broken record is good enough to keep saying we’re on time on the Ocean program and respecting the budget, “Fisker co-founder, CEO Henrik Fisker told analysts during the company’s earnings call last month.

Fisker said the company will start production on November 17, 2022, which actually looks good compared to other startups. Morgan Stanley analyst Adam Jonas said in a note that he believed Fisker “may be one of the few electric vehicle startups to launch on time and grow efficiently by the end of 2022.”

See also: The Tesla bubble: bets on electric cars and the rise of SPACs have led to a new version of the dot-com boom

These companies, as well as Faraday Future Electric Inc., FFIE,
+ 1.71%
Canoo Inc. GOEV,
+ 3.44%,
Lucid LCID Group,
+ 8.62%
and Rivian, which will go public soon, are among the most funded electric vehicle manufacturers in the United States. .

For example, Lordstown – an electric truck maker who took over a former GM plant in an area of ​​Ohio called Voltage Valley – revealed in July that its merger deal was under investigation by the Securities and Exchange. Commission and the Department of Justice, for various matters, including the information provided to investors on its pre-orders. Lordstown added a “going concern” warning to regulatory documents and clarified that the orders he had were not binding.

“To do what Tesla did, to build an automotive business from scratch to distribution, it took a phenomenal amount of money,” Smith said. Tesla is now almost 18 years old. After raising $ 226 million when it went public in 2010, it has returned to capital markets frequently, raising more than $ 20 billion through secondary equity sales and debt offerings.

Workhorse Group Inc. WKHS,
+ 0.97%,
which makes delivery vans and “last mile” electric utility vehicles, has also reportedly been the target of an SEC investigation, and Trevor Milton, founder of Nikola Corp. NKLA,
+ 2.32%,
was charged with securities fraud in federal court in the Southern District of New York, allegedly for exaggerating developments at the electric truck maker. Milton said he is innocent.

Since electric vehicle makers need the same large capital investment as other automakers, investors may be more inclined to favor established companies that are making a foray into electrification. Almost all of the major automakers in the world are now striving to develop electric vehicles, but in the United States, Ford Motor appears to be the most advanced, with the intention of offering dozens of electrified vehicles, including a truck, in the course of 2022.

Don’t miss: In pursuit of Tesla: here are the current plans for electric vehicles from each major automaker

If investors are looking to bet on one of Tesla’s next rivals, perhaps the best way is to pick one of the companies that are about to launch a car, like Fisker or Lucid, and then diversify the bets. on some traditional car manufacturers. Another option is to look for suppliers, instead of the much more capital-intensive car manufacturers.

Assad Hussain, mobility analyst at PitchBook, who tracks all aspects of the public and private capital markets, said professional investors are looking beyond the companies that make cars to those that supply automakers.

“Much of the smart venture capital’s money goes into the pickaxes and shovels, not necessarily trying to try and find the next Tesla,” Hussain said, drawing an analogy with the pioneers who got rich during the California Gold Rush of 1849 by providing supplies, instead of joining the hordes in search of gold in the Sierra foothills.

One example is a company called Redwood Materials, which is working on recycling lithium-ion batteries in electric devices and vehicles. Redwood was co-founded by JB Straubel, co-founder of Tesla and his CTO for 15 years. Sequoia recently raised $ 700 million from a group of investors, including T. Rowe Price, Amazon.com Inc. AMZN,
-0.67%,
and others.

Seattle-based Recurrent was founded last year and offers third-party reports on used electric vehicle batteries, to help car buyers determine vehicle life. This raised $ 3.5 million in seed funding at the end of last year.

“Maybe the smart thing to do isn’t look for the next Tesla, it’s to go out and find some enabling technology,” Hussain said.

The last century shows that periods of automotive innovation have finally taken hold in a triumvirate of dominant companies.

Whether that happens again is a conundrum, but the strategies here should help find the safest bets, such as the furthest businesses, established car companies, or turn to the most interesting vendors in this hot arena.


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