EV Startups Brace for Another Tough Year as Cash Dwindles

After worrying about producing enough autos, young electric-vehicle makers are now concerned about selling them.

For many of the electric-vehicle startups, last year was rife with supply-chain constraints and manufacturing troubles that hindered their efforts to get off to a fast start.

Now, young companies such as Rivian Automotive Inc. RIVN 7.63%increase; green up pointing triangle and Lucid Group Inc. LCID 4.81%increase; green up pointing triangle are facing a more pressing challenge this year: They need to right their factory operations before running through their cash reserves.

The earnings results over the past few weeks for these EV makers illustrated the urgency of their predicament. While these companies are now producing vehicles, losses continue to mount as they have struggled to spool up assembly lines and boost sales as planned, whittling down their financial cushions and increasing the likelihood of needing to raise more money.

Rivian, once flush with capital after raising nearly $12 billion in an initial public offering in 2021, burned through $6.6 billion in cash last year. Analysts predict it could go through another roughly $6 billion based on projected expenses for this year.

Despite cost-cutting measures and efforts to increase output at its sole factory in Normal, Ill., executives are still anticipating a difficult year. Rivian forecast in February it would make 50,000 electric trucks, sport-utility vehicles and vans in 2023, well below Wall Street’s estimates and a figure that sent its stock down 18% the following day.

Lucid, a maker of high-end electric sedans, also fell short on some fronts, reporting a drop in reservations in the last half of the year, to 28,000 at the end of December from 37,000 in June and setting an underwhelming production target for this year.

“Last year, our focus was on solving production bottlenecks,” Lucid Chief Executive Peter Rawlinson said. “Now in terms of sales, that’s my focus right now.”

Fisker Inc., FSR 3.10%increase; green up pointing triangle a California-based EV startup that went public in 2020 through a reverse-merger deal, had a more upbeat earnings report, telling investors it plans to deliver its first model—the electric Ocean SUV—in the coming months. The company’s shares surged 30% following the February earnings announcement.

Still, Fisker faces a tight timeline to hit its full-year production target and has little leeway for error. The company reported it had $736 million in cash at the end of 2022 and said it expected expenses to total up to $610 million this year.

The landscape for these startups has dramatically shifted from when they initially went public in 2020 and 2021.

Investor zeal for companies promising to reshape the car business was running high then, and the financial markets were pouring cash into the EV space, hoping to find the next Tesla Inc. These aspiring auto manufacturers raked in billions of dollars before they made or sold a single car.

In all, investors have plowed over $123 billion in these EV startups through public offerings, reverse-merger deals and other funding mechanisms in the past three years, according to Dealogic.

Within the past year, though, Wall Street’s patience for the startups’ manufacturing woes has started to evaporate.

Some EV startups such as Lordstown Motors Corp., RIDE 5.66%increase; green up pointing triangle Faraday Future Intelligent Electric Inc. FFIE 12.16%increase; green up pointing triangle and Nikola Corp. NKLA 1.90%increase; green up pointing triangle already hit cash problems forcing them to delay vehicles and scale back their ambitions.

Others, such as Polestar Automotive Holding UK PLC, PSNY -2.24%decrease; red down pointing triangle have posted better sales and a slimmer net loss than expected. The Swedish startup expects sales volume to increase by 60% this year to 80,000 units and recently raised $1.6 billion, which executives say is sufficient to fund operations this year.

Meanwhile, the strong car demand that helped push up vehicle prices across the board over the past few years is starting to weaken. Some EV makers have already adjusted prices down or are offering discounts.

Analysts say the need for raising capital could grow as these startups struggle with the costs of scaling their business and as capital markets are tightening.

Rivian’s stock is down about 80% from its IPO price, after it cut its production target in half last year and still narrowly missed the 25,000-goal by about 700 vehicles, due to missing parts.

This year, Rivian is planning more downtime at its factory to reorganize the line to produce more cars. It has already had two rounds of layoffs and delayed key projects, such as its next generation of vehicles, to preserve cash. Executives say supply-chain constraints, particularly on semiconductors, will continue to dent its production numbers this year, but it has enough cash to last until 2025.

Lucid recently raised $1.5 billion in funding from a share sale and had a total of $1.74 billion in cash and cash equivalents at the end of December—enough to last until the first quarter of 2024, executives say. The Newark, Calif.-based startup offered a cautious view on the year, though, and raised concerns about consumer demand.

Fisker said it had sufficient cash to launch its first vehicle, the Ocean, but said it was also examining raising more funds from lenders.

The auto industry has long been a capital-intensive business difficult for newcomers to penetrate. Tesla posted losses for years, while it struggled to build manufacturing scale, and relied on regular cash injections to stay afloat.

“The hard part is building the cars and the entire supply chain that goes with the cars,” Tesla Chief Executive Elon Musk said Wednesday. “This is a logistics challenge of extraordinary difficulty.”

In many ways, this new crop of EV startups faces a more difficult path. Tesla had few rivals for its cars when it launched the Model S over a decade ago, said Doug Betts, president of the automotive division at data-analytics company J.D. Power.

Now, these startups are also going up against more traditional car companies that have established supply chains and massive manufacturing operations. Competition is also getting fierce on the luxury end of the EV market, which is where these young companies are trying to target customers, analysts say.

“They have to beat BMW and Mercedes, who all have EVs now,” Mr. Betts said.

Source: finance.yahoo.com