Electric Vehicle Startups Promise Record Revenue Growth

Alphabet Inc.’s

GOOG -2.50%

Google was followed by Uber Technologies Inc.,

UBER 2.37%

that reached that mark within nine years of its first income, and then by Facebook Inc.

and the automaker Tesla Inc.,

TSLA -0.84%

that surpassed $ 10 billion in revenue within 11 years after the first generation of sales, according to a Wall Street Journal analysis of data provided by research firm Morningstar Inc.

Two other companies, Ree Automotive Ltd., a provider of electric vehicle components based in Israel, and Archer Aviation Inc., which intends to make an electric helicopter-like vehicle, plan to reach the mark within seven years. at the launch of your products. Those two, like Faraday, Arrival and Fisker, have either gone public or are in the process of going public through a merger with Special Purpose Acquisition Companies, or SPACs.

The record growth forecasts illustrate the degree of fervor for EV startups, particularly those listed on the stock exchange by merging with the SPACs, which are shell companies listed on a stock exchange for the sole purpose of acquiring. a private company to take is public. More than 10 electric vehicle or battery companies that have struck deals with SPAC have been valued at billions of dollars before generating revenue, as hobby traders and many traditional investors have flocked to the bustling sector.

Supporters say a move away from gasoline cars should open the doors to new brands. Much of the excitement, investors say, is also due to the brilliance of electric vehicle maker Tesla’s $ 665 billion market cap. While its shares have fallen in recent months, Tesla shares have increased eightfold in 2020.

Startups hoping to replicate Tesla’s success have chosen SPAC, a faster alternative to a traditional initial public offering, with more flexible regulatory requirements, and have released charts to investors showing how their plans require them to grow faster than Tesla. . Those projections, which regulations strongly discourage in IPOs, are another important factor in how investors value startups. Growth expectations tend to generate higher valuations.

The extraordinary aspirations and high valuations have led some analysts to say that the forecasts are unrealistic.

Pavel Molchanov, an analyst at Raymond James who covers the cleantech sector, said all these projections call for a “haircut.”

Even with governments around the world turning consumers away from gasoline-powered cars, there is expected to be a wave of new electric cars that could overwhelm consumers, Molchanov said. “I think there is too much optimism about demand,” he said.

Businesses and their backers say they face a very different market than the fastest-growing companies of yesteryear. Even the best tech companies can take a while to become household names, but cars and trucks carry such high price tags that it takes relatively few buyers to hit sales figures in the billions, they say.

Furthermore, they say, the electric vehicle market has matured significantly since Tesla began, opening the startups, many of which have raised a large amount of funding early in their lives, to a host of vendors who can facilitate production. .

Simon Sproule, a spokesman for Los Angeles-based Fisker, said the company’s plan to rely on outside manufacturers to build its cars will allow it to scale up manufacturing much faster than Tesla, while its initial vehicle is more market-driven. massive. .

“The market we are targeting is much, much bigger” than Tesla’s, he said.

Arrival, which plans to go from no revenue this year to $ 14 billion in 2024 through the sale of electric buses and delivery vans, is betting that operators of large fleets of vehicles will quickly switch to electricity amid more government efforts. wide to reduce emissions.

“We believe this is a turning point for the rapid adoption of millions of electric vehicles,” said Avinash Rugoobur, President of Arrival.

Others with rapid growth forecasts include Joby Aviation, which estimates it will have $ 20 billion in revenue in about 10 years, and electric carmaker Lucid Motors Inc., which plans to reach $ 22 billion in sales by 2026. Lucid already It has generated some revenue from battery sales and is launching its first car this year.

Before companies tackle demand, some investors say a hurdle could come from manufacturing, a particularly challenging endeavor given the complex auto supply chain.

Gavin Baker, a large Tesla investor in the early 2010s when he was a portfolio manager at mutual fund company Fidelity Investments, said companies are unlikely to “be able to grow at a rate two to three times faster than Tesla did it ”after it launched its Model S.

“It’s easy to make PowerPoint slides; it’s relatively easy to make some prototypes that look good and drive well, ”said Mr. Baker, now chief investment officer at Atreides Management LP. “It is difficult to produce high-quality, reliable cars.”

New companies listed publicly through SPAC face different regulations around forecasting than IPOs because the deals are officially mergers, not public offerings that face a higher level of scrutiny from regulators.

This dichotomy has raised concerns among some venture capitalists and others who say that inherently speculative forecasts may contribute to the hype surrounding a company that would not receive in an IPO.

“The real problem here is that this is regulatory arbitration, it’s a loophole,” said Robert Jackson, former commissioner of the US Securities and Exchange Commission and a professor at the University of New York law school. York. He said regulators should make it difficult for companies to publicly offer such projections.

Some SPAC managers have praised the ability to provide projections, saying they help startups communicate their vision to investors.

Regulators are paying attention. SEC officials indicated last week that they are intensifying scrutiny of the SPAC market.

Write to Eliot Brown at [email protected]