Opinion: If there were a ‘Big Three’ of electric vehicle makers, who would join Tesla?

When Henry Ford was reorganizing his Detroit Automobile Company, which would become the juggernaut of US auto manufacturing, hundreds of other young automakers were also starting out.

One of them, the National Motor Vehicle Car Manufacturing Company, started in Indianapolis, claimed six automakers in 1906. National Motor also competed and won the 1912 Indy 500. Sales boomed and so did production, but following a merger with Associated Motor Industry in 1922, the company ended up in receivership in 1924. Like hundreds of other early car companies, none of those six Indianapolis players survived.

There may be some innovation in the minds of investors eyeing the electric vehicle space today. Companies large and small, currently working on electric vehicles or their components, are reminiscent of the turn of the 20th century, when National and other companies switched from steam-powered to internal combustion, body forms and engines. Used with types. Early versions of electric vehicles.

By the stock market crash of 1929, there were only 40 automakers left, and this number eventually shrunk to the top companies in America referred to as the “Big Three”. Similar setbacks occurred globally, with the emergence of the Big Three in other countries such as Japan and Germany.

One big difference between then and now is that 100 years ago, “everyone was starting from scratch—no one benefited,” said Brett Smith, director of technology research at the Center for Automotive Research, or CAR. Today, traditional auto manufacturers already know how to build cars and build large assembly lines.

‘In the next 5 years, there’s going to be some remarkable growth for some of these companies. But there will be some who do not move forward and do not fight. There’s more to be optimistic about these companies than they were five years ago, as the technology moves closer to widespread adoption. The problem is that even traditional car companies are joining in now and the competition is tough.

— Brett Smith, director, Technology Research, Automotive Research Center

The question for investors is, which companies will become the biggest 3 of EVs?

Tesla Inc. is one of the biggest drivers of electric vehicles today. TSLA,
Which has finally proved to the world that EVs are the future. As rival startups and legacy automakers seek to emulate its success, investors should consider which EV companies will succeed and which will disappear.

Also read: EVs are gaining traction but you will still be driving a gas-powered car in 2035.

Globally, hundreds of startups are working on some aspect of electric vehicles, from building cars to charging station infrastructure, improving manufacturing processes, developing new battery technologies, and working on fuel cells. New York-based CB Insights said it is tracking more than 700 startups around the world that are active in the space.

“It seems like every day there’s a new one,” said CAR’s Smith.

Since February, shares of many better-known startups have lost much of their value due to serious issues including regulatory inquiries or investigations, class action lawsuits, management tumult and sudden executive departures. Stacking on these woes — which stem primarily from over-promising and under-delivery — is a semiconductor shortage that has previously hindered efforts to get products out the door.

Many publicly traded EV makers are still technically startup companies with little to no revenue or much operating history. But because of the SPAC boom and the de-SPAC process, they are now publicly traded companies, making investors bet on the next Tesla like venture capitalists.

“What they are doing is very difficult,” Smith said. “In the next 5 years, there is going to be some remarkable growth for some of these companies. But there will be some who do not move forward and do not fight. There’s more to be optimistic about these companies than they were five years ago, as the technology moves closer to widespread adoption. The problem is that even traditional car companies are getting into it now and the competition is tough.

As a result of some of those issues, Nikola Corp. NKLA expects no revenue for the rest of the year,
Lordstown Motors Corporation Ride,
and Fisher Inc. FSR,
With all three companies predicting their first vehicles sometime in 2022, if their current forecasts are to 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 say that we’re on time on the Ocean program and we’re on budget. Fisker co-founder, president and chief executive Henrik Fisker told analysts in 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 believes Fisker “may be one of the only EV startups that actually launches on time and ramps up impressively by the end of 2022.” “

See all: Tesla bubble: bets on electric cars and the rise of SPAC have sparked a new version of the dot-com boom

These companies, plus Faraday Future Electric Inc., FFIE,
Canoo Inc. GOEV,
Lucid Group LCID,
And Rivian, which will soon go public, is among the top funded EV makers in the US, but many have received billions from investors through private funding rounds or SPAC deals—electric truck-maker Rivian has raised $10.5 billion. – Some are now facing reliability problems.

For example, Lordstown — an electric truck-maker that acquired a former GM factory in an area of ​​Ohio called Voltage Valley — disclosed in July that its merger deal is being investigated by the Securities and Exchange Commission and the Justice Department. was being done by A variety of matters, including information provided to investors regarding its pre-orders. Lordstown added a “going concern” warning to the regulatory filing and clarified that its orders were not binding.

“To do what Tesla did was build a car company from the ground up and through distribution, which took an unprecedented amount of money,” Smith said. Tesla is now almost 18 years old. After raising $226 million in its 2010 IPO, it has often gone back into the capital markets, raising more than $20 billion through secondary stock sales and debt offerings.

Workhorse Group Inc. WKHS,
The company that makes electric “last mile” delivery vans and utility vehicles was also the target of an SEC investigation, and Trevor Milton, founder of Nikola Corp.
It has been charged with securities fraud in federal court in the Southern District of New York, allegedly for spurring the development of the electric truck maker. Milton has stated that he is innocent.

Since EV makers require the same hefty capital investment as other auto makers, investors may be more inclined to favor established companies entering electrification. Nearly every major auto maker around the world has some form of effort today to develop an electric vehicle, but in the US, Ford Motor is the farthest away, with plans to offer dozens of electrified vehicles, including trucks, sometime in 2022. appears.

Don’t miss: Chasing Tesla: Here are every major carmaker’s current electric vehicle plans

If investors are looking to bet on one of Tesla’s upcoming rivals, the best approach might be to choose one of the companies that are really close to launching a car like Fischer or Lucid, and then some traditional autos. Can diversify bets on manufacturers. Another option is to look for suppliers instead of more capital-intensive car manufacturers.

Asad Hussain, mobility analyst at Pitchbook, which tracks all aspects of the public and private equity markets, said professional investors are looking beyond carmakers to supply automakers.

“A lot of smart VC money is going into picks and shovels, not necessarily trying to find the next Tesla,” Hussein said, drawing an analogy with the pioneers who made the 1849 California Gold. Got rich during the Rush. supplies, instead of joining the crowd panning for gold in the Sierra foothills.

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

Recurrent, based in Seattle, was founded just last year and is offering third-party reports on used EV batteries to help car buyers determine the life of a vehicle. It raised $3.5 million in seed funding late last year.

“Maybe the smart thing to do is not to look for the next Tesla, but to go out and find a capable technology,” Hussein said.

The last century shows that a period of innovation in the automobile eventually settled into a trio of major companies.

Whether this will happen again is anyone’s guess, but the strategies here should help you find safe bets, such as look at the farthest automakers, established auto makers, or the most interesting suppliers in this hot sector.

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