Can Auto Tech Plunder an Endless Pot of Gold?

By Eric Volkman

---

26th March 2021

The next-generation vehicle industry has discovered a massive hoard of treasure.

Companies involved in the manufacture, supply and powering of such vehicles are hitting the stock exchange so often these days, industry watchers almost need a scorecard to catch up with them. Broadly speaking, that’s excellent news for the car industry. A river of capital is coming into a high-cost sector that is always starving for it and that cash will fund the operations of many businesses that otherwise might have struggled to raise money.

One big question about all this, however, is whether the treasure hoard will truly drive innovation and accelerate us to that glorious, fully autonomous future. Edgar Faler believes it will. A senior industry analyst for the Center for Automotive Research (CAR) in the US, Faler said: “The transportation industry overall will consume a lot of capital in order to transition to full electrification. Significant capital investment is still required to create essentially a new EV ecosystem in the areas of advanced batteries, new EV vehicle architectures, as well as charging infrastructure… it’d be difficult for automakers and vehicle manufacturers to fund this all on their own.”

Faler’s response, however, illustrates one glaring fact about the current investor rush towards next-gen car companies – in almost every instance, the ones coming to the stock exchange are associated in one way or another with EVs. We can call this the “Tesla effect,” since the increasingly high-profile American company has, for better or worse, become the standard-bearer for the future of the automobile.
Pavel Molchanov, a clean technologies analyst at investment bank Raymond James, points out that, as of mid-February, the total count of EV companies listing on US stock exchanges had more than doubled across the previous year. During that time, we witnessed the second iteration of luxury EV carmaker Fisker arriving on the stock market, several debuts of companies involved in the EV charging station segment like ChargePoint and even companies specializing in EV trucks, for example pickup maker Lordstown Motors.

However, these stock market newcomers might be suffering from a case of inflated hopes and thus could end up being cautionary tales. “When Tesla became a public company ten years ago, it was a first-of-its kind stock,” Molchanov pointed out. “As such, many other EV start-ups have a strategy of trying to replicate Tesla’s success. Though, to state the obvious, it is hard to imagine any other EV company reaching a market capitalization of $800Bn. In fact, the history of the past decade shows that some EV start-ups will have no commercial success at all, as shown by bankruptcies such as Aptera, Coda and the first iteration of Fisker.”

Financial vehicles

The lure of big pots of money is too hard to resist for many, however. EV companies look at the landscape of finance and they see a great many investors with armfuls of money for their industry. On top of that, one recent piece of financial engineering has made it easier than ever for a business long on ambition but short on dosh to become a publicly traded company – the special purpose acquisition company (SPAC). A SPAC is basically an “empty shell” company that has already listed on a stock market; a privately-held business basically merges with the SPAC and voila!, instant publicly traded company.

Compared to the traditional way of going public via an initial public offering (IPO) underwritten by a syndicate of high fee-charging investment banks, a SPAC merger is fairly quick and inexpensive. “SPACs don’t follow the same lengthy due diligence process and investors don’t require the same historical track-record, as the case with traditional IPO’s, at least so far,” said CAR’s Faler. He pointed out that nearly all EV companies that went public in 2020 did so via SPACs.

One of them is XL Fleet, which describes itself as “the leader in connected fleet electrification solutions for commercial and municipal fleets.” The company parked itself into a SPAC in December 2020, thereby becoming a stock you or I can trade for our portfolio. That move scored it roughly $350 million in fresh capital; not bad for a company that was expected to book all of $21 million in revenue for the entirety of 2020.

Of the company’s arrival on the stock exchange, the company’s founder and president Tod Hynes said that it confers several important benefits – including innovation. Going public has allowed it to “gain access to additional financial flexibility, opportunities to scale and new resources to invest in our business growth”. “This also allows us to diversify our product offerings, expand into new high-growth markets and lead the fleet industry’s rapid shift towards electrification,” he added, sounding a very confident note. So, overall, this recent investor interest in new auto technology is a boon for the industry… or at least, for companies in the EV space. We’ll soon see which ones can harness their new funds for innovation and success and which will be left by the roadside.