There is nothing special about this. Just being an automaker is capital intensive. Building from scratch that tries to change the underlying technology is financially insane.
Even now that Tesla has begun generating free cash flow – nearly $ 4 billion over the past four quarters – that amount is small compared to its valuation and ambition and is heavily dependent on regulatory credit sales (with some bitcoin profit added). Despite claims of self-financing or self-financing relatedness, Tesla continued to benefit from the mega-growth in stocks last year, issuing more than $ 12 billion in new capital – half of all external capital it raised net over the past year. decade.
Tesla blazed the trail in electric vehicles and targeting passenger cars, the largest segment of the automotive market. This is the case when wealthy pioneers are willing to pay six figures for something cool but unproven. Lordstown followed and aimed at the commercial fleet pickups.
It is a smaller market: around 10 million passenger cars were sold globally in 2019, compared to 84 million passenger cars. The latest forecast by Bloomberg NEF, released on Wednesday, predicts that demand for all-electric light commercial vehicles will grow nearly 50-fold by 2030. However, the US is relatively lagging behind China and Europe.
This market is also very competitive. Particularly worth checking out is Ford Motor Co.: An electric version of the dominant F-150 truck is set to hit the road early next year, and a new Maverick hybrid compact truck priced under $ 20,000 will be unveiled this week.
Meanwhile, Lordstown is trying to differentiate itself by using geared motors in each wheel. This is aimed at reducing parts and increasing productivity, but the technology has yet to be scaled-up, which increases the risks of Lordstown’s own development and potentially discourages fleet buyers who value reliability over innovation.
The only way Lordstown could even attempt to do this was with extremely patient capital. If we recreate the Tesla cash flow chart for Lordstown, it will consist mainly of a large bar labeled “We got SPAC’d”.
Venture funds have been used to fund this kind of thing; Tesla was 8 when she went public, compared to Lordstown’s mature age of 2. Tesla’s meteoric rise amid a broader surge in green stocks triggered a wave of SPAC. According to Bloomberg NEF, about $ 7.5 billion has been raised for electric vehicle companies through SPAC, and there is another $ 11.8 billion (of which the Lucid Motors Inc. luxury car brand accounts for more than a third).
However, Tesla’s own history shows that electrification of vehicles is heavily dependent on cheap capital, government support, or a Musk-like svengali to run things. As companies like Ford do their part, they profit from traditional car sales.
This does not mean electrification is doomed once Treasury yields return above (horror) 2%. Despite the collapse in stock prices, not even Lordstown is ready yet. First, the Department of Energy has an additional $ 10 billion in credit to build vehicles using advanced technology.
Nonetheless, Warren Buffett once thought that a smart investor a century ago would “lose” rather than try to pick winners from among the thousands of then-new automakers, most of which have disappeared. Today’s SPAC-fueled race will by definition create unicorns that live on a diet of third-party capital and will starve when taken out.