Nikola Corporation rang the Nasdaq Closing Bell from around the world.
Source: The Nasdaq
Electric vehicle startups that went public through SPAC deals last year are trying to prove themselves to Wall Street as investors become increasingly skeptical of their future and securities regulators scrutinize their books.
canoe and Lordstown Motors recently held Personal Investor Days to showcase their technology and new products following corporate governance reorganizations, Securities and Exchange Commission inquiries, and significant stock declines.
Others have launched promotional or marketing campaigns to attract potential buyers as Wall Street is closely monitoring vehicle reservations, an indicator of future sales. Lucid who announced a SPAC deal but not yet going public, a nationwide television campaign began while in December Fisker CEO Henrik Fisker uses social media to generate buzz and promote his company. The well-known automotive designer even launched a new line of Fisker clothing that includes t-shirts for $ 30 and sweatshirts for nearly $ 100.
The companies are part of a growing group of EV startups going public or announcing plans to do so with SPACs or special acquisition companies. Others recorded Nikola, ArrivalsFaraday future Electric last mile and a host of other auto and technology companies.
Despite the hype, none of the companies produced a salable vehicle, and some like Fisker and Canoo are more than a year away from producing their first vehicle.
Most of the deals were initially celebrated by investors who sent stocks through the roof and turned some founders into millionaires, if not billionaires, overnight. But the tide has turned on many of the companies after the SEC cracked down on cracks this year, including investigations, warnings to investors, and potential changes to accounting policies.
“Do I think there will be a correction? Absolutely. The public market is finding things out,” said Marco Marinucci, partner and head of Hella Ventures, which has interests in auto companies Wejo and AEye, which have announced SPAC deals. “I think we can already see that the appetite for a very early stage is decreasing.”
The CNBC SPAC 50 index, which records the 50 largest pre-merger blank check deals in the US by market capitalization, has slumped about 4% year-to-date. Post-merger SPACs fare much worse – the CNBC SPAC Post Deal Index, which is comprised of the largest SPACs to hit the market that have announced a proposed acquisition, is down nearly 10% so far this year.
Marinucci, whose corporate venture capital firm is owned by auto parts supplier Hella Lighting, believes SPACs can be a great path for some auto startups, but not for every company. He said SPACs will remain an important and viable way for companies to get funding for technologies that might otherwise not be developed.
A SPAC is a blank check company that is used as an alternative to going public because it raises funds to buy something but does not do business of its own. SPACs are publicly traded companies that have no real assets other than cash. They are formed as an investment vehicle with the sole purpose of raising funds and then finding and merging with a privately held company. It’s a faster way to get a company public than a traditional IPO, but some have gotten into trouble.
At least three SPAC-backed automotive companies – Nikola, Lordstown Motors, and Canoo – have received inquiries from the SEC. Everyone has ousted the founders and CEOs of the companies. The companies have announced that they are cooperating with the SEC investigation.
The prototype of the endurance pickup from electric vehicle start-up Lordstown Motors Corp, construction of which will begin in the second half of 2021, can be seen on June 25, 2020 at the company’s plant in Lordstown, Ohio, USA.
Lordstown Motors | Reuters
Others who have announced deals like Lucid and Faraday future missed their target closing dates in the second quarter, a potential red flag in a cooling SPAC market and increased SEC scrutiny of SPACs.
“I’m glad we’re not launching SPAC today,” said James Taylor, Co-Founder and CEO of Electric Last Mile Solutions on Monday Monday CNBC’s “Squawk Box”. “No question about it, there were some challenges in some SPACs.”
Electric Last Mile voted to go public in December through a reverse merger with blank check company Forum Merger III Corp. , which the EV company valued at $ 1.4 billion. It began Trading on the Nasdaq on Monday.
The company also missed its original first quarter close, which Taylor attributed to SEC review and new accounting guidelines for SPACs Treat warrants as liabilities instead of equity on the balance sheet.
The SEC is devoting significant resources to addressing emerging SPAC issues, new ideas and recommendations related to SPACs, and the adequate protection of retail investors, SEC Chairman Gary Gensler said in May.
The slowdown in the SPAC market has been dramatic since the SEC increased its engagement. According to SPAC Research, 46 companies went public through SPAC deals between April and mid-June. This compares with an average of about 100 per month in the first quarter of the year.
“Lately, there has been a little more realism or practicality applied to whatever seems to happen after the company goes public,” Morningstar analyst David Whiston told CNBC. “You had the initial hype, but now you have the reality that you need to run.”
Whiston said, “For many of these companies like Canoo and Lordstown, reality has arrived.”
Canoo’s new electric pickup can be converted into a camper.
Of the EV startups, Canoo and Lordstown saw the biggest declines in 2021. Canoo is down 28% while Lordstown is down 45% so far this year. They follow Nikola – the first high profile auto company to go public last June – which went from a top stock to a competitive company following SEC inquiries and the ousting of its chairman and founder. Nikola is down 47% since debuting in June but is up 18.4% this year.
New Canoo and Lordstown executives held investor events this month to help win back Wall Street’s trust. Both companies have ousted their founders and CEOs since going public.
Workers install door hinges on the body of a prototype electric endurance pickup truck at the Lordstown Motors assembly plant in Ohio on June 21, 2021.
Michael Wayland / CNBC
Lordstown tours held last week at its headquarters and facility in Lordstown, Ohio. Part of the tour included a pre-recorded employee who said the company had “real employees at a real plant”.
Canoo held an investor event the week before restore the company’s goals and priorities, including plans for a new factory in Oklahoma. Canoo CEO Tony Aquila, who succeeded company co-founder Ulrich Kranz in April, promised investors that his team will have “big news or no news, real news or no news” to distance themselves from its critically acclaimed past and competition .
“It’s better to get out of SPAC puberty early,” he told CNBC during a video interview. “I was the first to reduce the volume to realistic levels. The previous team didn’t do anything wrong, they were just euphoric.”
Not all EV startups have done badly. Fisker, which went public in October, is up 115% since its debut, including a 32% increase in 2021.
– CNBCs Yun Li contributed to this report.
Correction: SEC Chairman Gary Gensler’s comments were made in May. In an earlier version, the month was incorrectly specified.