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With technology disrupting the automotive industry, investors have rushed to secure exposure to potential winners – be it battery manufacturers, manufacturers of other forms of energy storage or developers of “deal” sensors that some believe are the key to car development autonomous.
However, according to an analysis by the Financial Times, the nine automotive technology groups listed through a special-purpose acquisition company (SPAC) last year expected revenues of just $ 139 million for 2020. They include QuantumScape , a battery company supported by Bill Gates and Volkswagen; the start-up of the Nikola hydrogen truck; and the company dealing with Luminar Technologies.
Although the past 12 months have proved to be a heated market for technology groups that make conventional IPOs, bankers and lawyers say the SPAC process gives companies – and the vehicles that acquire them – much more latitude in disclosing future financial projections. The nine automotive technology companies, for example, jointly predict that their revenues will reach $ 26 billion in 2024.
SPACs usually justify stratospheric projections by pointing to large “addressable markets”, such as electric vehicles, where even a small market share can be profitable and make assessments based on forecasts of future revenues appear cheap.
“There is regulatory arbitrage between the SPAC model and traditional IPOs,” said Gary Posternack, head of global mergers and acquisitions at Barclays.
“In the marketing process around SPAC combinations, there is an ability to discuss future projections or guidelines, whereas in regular IPOs, companies cannot provide this information. Regulators can ultimately try to close that gap, but for now the difference is creating real opportunities, ”he added.
The money that is entering the sector – and not just through vehicles with blank checks – is a bet that electric vehicles will eventually become ubiquitous. Market research firm IDTechEx estimates that EVs will make up up to 80% of the global market in 2040, while heavyweights like Volkswagen and General Motors are investing billions of dollars to develop their own models.
But even if EVs become dominant, it won’t happen overnight. And how the talismanic performance of the Tesla electric vehicle pioneer – now with a market cap of nearly $ 800 billion – helps sustain the investment craze for automotive technology groups, venture capitalists who specialize in supporting start-ups risks warn of potential dangers.
“If you project that your first revenue is in 2025 and you have to build a model based on a product you haven’t built yet, I think it’s very difficult,” said Arjun Sethi, a partner at Tribe Capital, a venture capital firm based in in San Francisco. “It is one of the reasons why you have venture capitalists.”
QuantumScape’s short history as a public company underscores the volatility that investors face. Taking advantage of a wave of demand, the group’s shares reached $ 131 at the end of December, an increase of thirteen times over the $ 10 that SPACs usually quote.
Leaving Stanford University, QuantamScape has released data that claims to show advances in solid-state battery technology that can help improve the driving range of electric vehicles. The company’s market capitalization, which expects no revenue until 2024 and no profit for the next three years, last year briefly eclipsed that of Ford and Fiat Chrysler.
However, the stock has since plummeted 60 percent from its peak. QuantumScape did not respond to a request for comment.
Luminar Technologies is another SPAC with a short life, but so far remarkable, as a public company. The shares of the group, which develops laser-based image sensors, or lidars, which can be used for autonomous driving, have almost doubled since the listing in December.
Founded by engineer Austin Russell, 25, the Silicon Valley company signed a production contract with Volvo scheduled to start in 2022, differentiating it from its competitors. But its valuation of about $ 10 billion surpasses the automotive deal market, which Northland Securities analyst Gus Richard estimates will be worth $ 2.5 billion in 2025. Luminar declined to comment.
A senior Wall Street lawyer who has worked in several SPAC businesses says the enthusiasm of retail investors has been a key feature of the automotive technology industry craze.
“If the trading strategy is ‘I’m going to buy across the spectrum, because there will be winners and I know there will be losers’, then this is not a crazy investment strategy,” said the SPAC consultant. “But not all electric vehicle companies will survive. They just can’t, there are too many of them. “
Retail investors were among those caught up in the crisis that involved Nikola, an electric truck start-up in the United States and one of the first beneficiaries of the investment craze. After reaching its peak in June, Nikola’s stock plummeted in September, after short seller Hindenburg Research claimed the company was an “intricate fraud”. Its founder Trevor Milton, who resigned in September, denied any wrongdoing.
Despite the turbulence, the shares of all nine automotive technology companies that used SPACs to go public last year were traded well above $ 10, with an average price above $ 20. In fact, shares in almost three quarters of the 37 SPAC deals completed last year are trading over $ 10. More than a third are trading over $ 20.
Nor is there any sign that the wave of interest has peaked. Lucid Motors, a group of Californian electric vehicles controlled by the Saudi Arabian sovereign wealth fund that has yet to deliver a single model, is in talks to merge with one of the SPACs launched by former Citigroup investment banker Michael Klein, according to knowledgeable people. straight from the story.
However, some warn that the combination of automotive technology craze and SPACs is likely to remain fuel this year.
“It is not sustainable because at some point things are going to normalize and investors are now buying these things blindly,” said a senior executive at a stock selling bank.
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