For EV startups, things are going from bad to worse
Summary
Makers and suppliers of electric cars are dealing with diminishing cash, uneven sales and the prospects of an unfriendly Trump administration.Electric-vehicle startups were struggling before the election. Donald Trump’s victory could send them into a tailspin.
Several high-profile companies, including electric SUV maker Fisker and bus manufacturer Arrival, filed for bankruptcy earlier this year. Swedish-based battery maker Northvolt became the latest casualty last week, filing for Chapter 11 after BMW canceled a key order.
At least a dozen other startups, specializing in electric vehicles or batteries, are at risk of running out of cash by next summer, according to a Wall Street Journal analysis of their most recent filings.
Even shares of more stable startups, such as Rivian Automotive and Lucid Group, are down 40% or more this year as they face an increasingly challenging outlook. Rivian this week got conditional approval for a government loan of up to $6.6 billion to boost production capacity, but investors are still worried about costs and the prospect that the electric-truck maker might not get the money if it doesn’t complete the deal by Inauguration Day.
Many of these young companies have been hammered by cooling demand for electric cars, rising costs and supply-chain obstacles that have hindered their ability to put out new products quickly. Collapsing stock prices have vaporized billions of dollars in market value.
The shifting political landscape is putting at risk planned investment in the U.S., some of which has been aided by state and federal subsidies.
“It’s just a disaster out there with consumer demand going down," said Ted Brandt, chief executive of clean-energy focused investment bank Marathon Capital.A Journal analysis of 54 publicly traded EV and battery startups shows an increasingly dire financial situation. Seven companies have already filed for bankruptcy. Of 36 operational companies with sufficient data for analysis, three-quarters are losing money and 13 are projected to run out of cash by next summer.
More challenges ahead
The Trump administration is expected to deal another hit to their efforts. The president-elect has pledged to get rid of a $7,500 tax credit for EVs that has helped stimulate demand. Industry executives are also concerned that Biden-era funding for electric-vehicle ventures and battery projects could also be in jeopardy in Trump’s second term.
Meanwhile, new or increased tariffs on vehicles and auto parts coming from overseas—such as Trump’s proposed levies this week on Mexico, Canada and China—could push up costs further.
The hurdles are ripping through the automotive supply chain, crunching demand for batteries and materials such as lithium that power them.
“It’s a whole ecosystem that is collapsing," Brandt said.
Many of the startups went public in recent years, riding a wave of enthusiasm for companies trying to emulate Tesla’s success in the past decade.
Some took advantage of a boom in so-called reverse-merger deals, in which a still-fledgling firm merges with a special-purpose acquisition company, or SPAC, to list publicly. These deals offer companies an easier route to the public markets than a traditional initial public offering but have been shown to enrich insiders at the expense of other investors.
The transition to a second Trump administration also comes at a critical time for more established Western automakers such as Ford and General Motors. These car companies, which have pledged billions of dollars to expand their EV lineups, are now delaying or pulling back some future investment as sales haven’t materialized as anticipated.
Many are worried about falling even further behind new rivals in China, such as electric-car maker BYD and battery manufacturer CATL. A U.S. retreat from clean-energy industries could extend China’s vast lead in these sectors, analysts warn.
“If they continue that, then we’ve just given up on a major economic driver of the next 50 years," said Aniket Shah, global head of sustainability and energy transition strategy at investment bank Jefferies Group.
Privately held Northvolt was among the industry’s most stunning implosions. The startup, which sought to make batteries with a lower carbon footprint, had raised some $15 billion in nearly a decade from backers including Volkswagen, Goldman Sachs Asset Management and the European Union.
Investor excitement about its battery technology and the record of Chief Executive Peter Carlsson, a former supply-chain manager at Tesla, drove up the company’s valuation.
The weakening EV market, along with BMW’s canceled order, upended the company’s plans and pushed it into bankruptcy protection. Carlsson has since left his role.
Battered startups
Other startups with U.S. government support are also faltering. Li-Cycle Holdings, a firm that has promised to turn recycled batteries into useful materials, has an approved $475 million government loan to help build out a plant in Rochester, N.Y.
But at the end of September, it only had enough cash on hand to sustain operations for about six months. The Canadian firm, backed financially by miner Glencore, has paused construction on the factory due to ballooning costs.
Li-Cycle shares are down more than 97% from the listing price, when accounting for a reverse stock split.
Chief Executive Ajay Kochhar said the company is confident it can raise the money needed to finish the Rochester project and build a self-sustaining business. “Investors are throwing the baby out with the bath water" in the sector, he said.
Electric van and truck maker Canoo is also burning through cash and has laid off about a quarter of its workforce in Oklahoma City to conserve money.
It had received a $113 million incentive package from the state to create more than 1,300 jobs at its vehicle and battery plants in Oklahoma and had promised to quickly hit $1.4 billion in revenue this year, after listing publicly in 2020 through a SPAC deal.
“It feels like being punched in the face every morning trying to develop vehicles that have all their components for so long been outsourced to China," said Chief Executive Tony Aquila.
This month, the company secured a $12 million loan from an investment firm controlled by Aquila.
Some startups are still pursuing SPAC deals. In June, Thunder Power Holdings, a Wilmington, Del.-based company that proposes to use artificial intelligence to make better EVs, completed a reverse-merger deal. Since then, shares with the ticker “AIEV" have fallen more than 97% to 25 cents at Wednesday’s close.
“A lot of these management teams go into it thinking they’re going into the next Tesla, but that proves to be more the exception than the rule," said Brian Dobson, a managing director at brokerage Clear Street who has followed the sector closely.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and Shane Shifflett at shane.shifflett@dowjones.com