The auto industry has gone crazy over SPAC and it may not end well

The combination of the craze for electric vehicles and blank check companies is volatile

Fisker now has a market cap of $4.1 billion thanks to a SPAC reverse merger in 2020. It says that the Ocean SUV will be the most sustainable vehicle ever sold.

With technology revolutionizing the auto industry, investors are have been quick to secure exposure to potential winners, whether they are battery makers, makers of other forms of energy storage, or developers of the “lidar” sensors that some belief are key to autonomous car development.

However, According to an analysis by the Financial Times, the nine automotive technology groups that were listed through a special purpose acquisition company (SPAC) last year expected revenue of just $ 139 million between them by 2020. They include QuantumScape, a battery company backed by Bill Gates and Volkswagen; the start-up of the Nikola hydrogen truck; and LIDAR Luminar Technologies.

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While the last 12 months have proven to be a hot market for tech groups conducting conventional IPOs, bankers and lawyers say the SPAC process gives businesses and the vehicles that acquire them, much more freedom to disclose future financial projections. Nine automotive technology companies, for example, together predict their revenues to reach $ 26 billion by 2024.

SPACs often justify stratospheric projections by pointing to large “addressable markets” like EVs, where even a small share Market trading can be lucrative and making valuations based on predictions of future revenue seems cheap.

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“There is regulatory arbitrage between the SPAC model and traditional IPOs,” said Gary Pasternack, director of global mergers and acquisitions at Barclays.

“At the marketing process around SPAC combinations, there is an ability to discuss projections or future direction, whereas in IPOs on a regular basis, companies are unable to provide that information. Ultimately, companies may try to reduce this gap, but for now, the difference is the creation of real opportunities, “he added. The money coming into the sector, and not just through blank check vehicles, is a gamble that EVs will eventually become ubiquitous. Market research firm IDTechEx estimates that electric vehicles will make up as much as 80 percent of the global market by 2040, while electric vehicles While Volkswagen and General Motors are investing billions of dollars to develop their own models.

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But even if EVs become mainstream, it won’t happen overnight. And as the talismanic performance of electric vehicle pioneer Tesla – now with a market value of nearly $ 800 billion – helps prop up the investment mania of auto tech groups, the venture capitalists who specialize in backing companies. Risk start-ups warn of potential dangers.

“If you project your first income to be in 2025 and you have to build a model based on a product you haven’t created yet, I think it’s very difficult,” said Arjun Sethi, a partner from Tribe Capital, a San Francisco-based venture capital firm. ” It’s one of the reasons they have venture capitalists. “From Stanford University, QuantamScape released data that it says shows advances in solid-state battery technology that could help improve the driving range of cars. Electric vehicles: The company’s market capitalization, which expects no revenue until 2024 and profits for three years later, last year briefly eclipsed that of Ford and Fiat Chrysler.

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However, stocks are down 60 percent from their peak. QuantumScape did not respond to a request for comment.

Luminar Technologies is another SPAC with a brief but so far surprising life as a public company. Image-based imaging sensors, or lidars, that can be used for autonomous driving have nearly doubled since their listing in December. 40-440-4 Founded by 25-year-old engineer Austin Russell, the Silicon Valley company has signed a production deal with Volvo that will start in 2022. But its roughly $ 10 billion valuation dwarfs the automotive lidar market, which Northland Securities analyst Gus Richard estimates will be worth $ 2.5 billion in 2025. Luminar declined to comment. The SPAC deals say that retail investor enthusiasm has been a key feature of the auto tech industry mania.

“If the business strategy is’ I’m going to buy across the spectrum because there will be winners and I know there will be losers, so that’s not a crazy investment strategy, ”said the SPAC advisor. “But not all EV companies will survive. They just can’t, there are too many.”

Retail investors were among those hit by the crisis that gripped Nikola, an American electric vehicle startup and an early beneficiary of the investment craze. After peaking in June, Nikola shares fell in September after short-seller Hindenburg Research claimed the company was a “Complicated Scam.” Its founder Trevor Milton, who stepped down in September, has denied any wrongdoing.

Despite the turmoil, shares in all nine auto-tech companies that floated SPACs last year traded well above $ 10, at one Average Price Over $ 20 Shares in nearly three-quarters of the 37 SPAC deals signed last year are trading above $ 10. More than a third are trading above $ 20.404a4
Nor there are signs that the wave of interest has peaked. Lucid Motors, a group controlled by a California-based electric vehicle company that does not yet have to deliver a single model, is currently in talks with one of the SPACs launched by former Citigroup investment banker Michael Klein, according to data from people with direct knowledge.

The combination of the mania for auto-tech and SPACs should remain flammable this year.

“It is not sustainable because things will normalize at some point and investors. We are buying these things now blindly,” said an executive at a stock sales bank.

Arstechnica / TechConflict.Com

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