Electric vehicle startups could collapse as quickly as they grew

Even Rivian, considered by many auto experts to be the most promising Western EV startup, isn’t immune to the boom and bust cycle unfolding in the EV market. But experts say that’s typical of the emergence of new industries.

Rivian’s stock has fallen 75% since its IPO last year. In November 2021, Rivian was more valuable than Ford and GM, but is now worth around half that. Its appeal as a counterweight to Tesla, highly valued investors and a 12-year ramp-up in production weren’t enough to shield its stock price from a downturn that hits nearly every electric vehicle company.
In 2021, Rivian produced 1,015 vehicles, below its target of 1,200. Its production pace has more than doubled since last year – producing 2,553 vehicles in the first three months of the year – but remains below what is necessary to be profitable and justify its high valuation. The company already plans to build a second manufacturing plant in Georgia to complement its plant in Illinois, where the existing plant plans to produce 200,000 vehicles a year. Rivian, like many automakers, also raised prices amid inflation and supply shortages, but apologized and reversed price increases on existing pre-orders following customer backlash. .
The challenges have been even worse for other electric vehicle companies that have gone public in recent years. The stock prices of Faraday Future, Lordstown Motors and Electric Last Mile Solutions have all fallen more than 70% since their IPO via SPAC, and all have been investigated by the SEC.
SPACs, which have been popular with electric vehicle companies, allow companies without significant revenue or proven products to go public without as much scrutiny as a traditional initial public offering.

Sharp declines in the price of electric vehicle stocks can be typical ups and downs. New industries that are exciting investors with the potential to ride a financial rocket into the stratospheres of wealth, but some companies going public might not otherwise in less enthusiastic times. The bust 2000 dot com is an oft-cited example.

Although no new public company involved in electric vehicles has been found guilty of fraud to date, the fraud is indeed typical of stock market bubbles, according to William Quinn, a senior lecturer at Britain’s Queen’s Management School. who studies stock market bubbles. He pointed to the British bicycle bubble of 1890 when hundreds of new bicycle companies went public at excessive valuations. Almost all went bankrupt within a few years.

David Kirsch, a business professor at the University of Maryland and co-author of the book “Bubbles and Crashes,” said he expects some electric vehicle startups to survive, but many to fail. “Stories unfold,” Kirsch told CNN Business.

The fate of two electric vehicle companies, Nikola and Lordstown Motors, appeared to worsen in 2020 and 2021, respectively, following critical reports alleging misleading and inappropriate conduct by investment firm Hindenburg Research.

US electric vehicle companies are not the only ones to see their valuations reduced. Chinese electric vehicle startups have also taken a hit. Shares of Nio are down 49% this year, while X-Peng is down 52% and BYD’s is down 17%. Even the world’s most valuable automaker, Tesla, has not been spared; its declining stock is 27% this year.

Kirsch sees the falling stock prices of companies that want to rival Tesla as evidence of how difficult it is to turn startups that inspire investors with a story into companies that prove themselves on paper with revenues and profits.

“Some of these companies are exposed in a certain way,” Kirsch said. “There’s a saying, when the tide goes out, you see who’s not wearing a bathing suit.”

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