Is anyone actually making electric vehicles?

25 May 2022 - 07:47 By Anjani Trivedi
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Rivian is one of many EV makers that has lost its sheen in recent weeks.
Rivian is one of many EV makers that has lost its sheen in recent weeks.
Image: Bloomberg

It’s about time investors were hit with the reality about electric vehicle (EV) startups. But what do tanking shares mean for the much-hyped, cheap capital-sucking EV makers that took the market by storm last year?  

Stocks of EV upstarts, from New York-listed Chinese firms such as Nio Inc, Xpeng Inc and Li Auto Inc to their American peers Rivian Automotive Inc and Lordstown Motors Corp, have lost their sheen in recent weeks, exacerbated by a broader turn in sentiment and rising rates. Turns out making fancy, future-forward cars is hard.

It’s even tougher when costs to produce vehicles are surging. Manufacturers can’t get their hands on parts and sales have been underwhelming. Adding pressure, Chinese companies that trade in the US are getting caught up in the regulatory tit-for-tat between Washington and Beijing. 

Until now, raising capital had been the easy part. Investors rushed to check off their ESG-friendly holdings, happily backing anything that seemed tech-y and green. All the while they appeared to ignore the basic requirement of a manufacturing company: Can it actually make the product? Is it being produced at scale? How quickly will it go from prototype to mass production? 

Many upstart EV makers boasted all sorts of artificial intelligence and smart-driving systems. Still, they needed to source integral parts from other firms, especially the core component — batteries. They put out big production forecasts, based on unlimited consumer demand and the inevitable need for companies to bow to regulatory pressure around emissions. Several even went with an asset-light model, contracting out the vehicle-making part.

Most investors loved the rhetoric. Pulling in cash is getting tougher as rates are rising. Investors will soon be forced to face another reality: Production and manufacturing matter. It’s not just about the ability to bulk up coffers. Putting capital to work will need to go beyond talk of adding fancy gadgets, software systems and speccing out vehicles. Meanwhile, even though car buyers are keen on EVs, hobbled supply and high prices risk denting demand. The average cost of a new EV in the US is $65,000 (roughly R1,020,266), according to Kelley Blue Book estimates.

Barriers to entry are rising, too. EV and battery companies that can’t produce or show viable products will become the laggards — if they can survive at all. In recent weeks, these firms seem to have grown realistic about their plans.

Struggling firm Lordstown recently sold its factory to iPhone contract assembler Foxconn Technology Group for $230m (roughly R3,609,252,000) to raise cash, and said its ability to stay in business depends on getting more funding. Earlier this month it struck a joint venture deal with the assembler to make cars. When it went public almost two years ago, it had hoped to make 2,000 pickups and 32,000 in the following full year. Now it plans to make 500.

A production deal doesn’t necessarily speed the manufacturing process, either. Foxconn has also partnered with Lordstown competitor Fisker Inc to make cars. That’s in addition to Fisker’s existing agreement with another large contract manufacturer, Magna International Inc. But even with pros by its side, the company only expects to make vehicles by the end of this year. 

In Fisker’s public offering document one of the risk factors stated was that the company’s “business model relies on outsourced manufacturing of its vehicles. The cost of tooling a manufacturing facility with a collaboration partner is high, but such cost will not be known until Fisker enters into a vehicle manufacturing agreement”. The EV company stated clearly that “investors should not place undue reliance on Fisker’s statements about its production plans or their feasibility in the time frame anticipated, or at all”.

Yet investors seemed confident: EVs were about to roll off production lines. Blame Covid-19 or supply chains or geopolitics, the reality is there aren’t many EVs on roads in 2022.

Even EV firms with big backers and policy support haven’t had it easy, and are only now coming around to ramping up production and sales. Nio, XPeng and Li Auto are producing only thousands of units per month. Elsewhere in the world, Lucid Group Inc, which is backed by Saudi Arabia’s sovereign wealth fund, is setting up production in the kingdom and has inked a purchase agreement with the government for up to 100,000 cars. 

EV companies will no doubt face growing pains and it’s obviously good to have bold plans. However, someone’s has to make sure they’re delivering on those promises. The danger is the hype dies off and takes demand with it as consumers give up their hopes. In that case, we’ll end up where we started. Investors need to peel past the promises and pressure manufacturers to produce at scale, and soon.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

More stories like this are available on bloomberg.com/opinion


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