The EVolution #7: PIPE Dreams
Speed bumps lie on the road to billions in EV sales by new entrants
This newsletter exists because I’m excited by and optimistic about electric vehicles. I’m no blind zealot, though. Patience and skepticism are beneficial qualities in evaluating this field (and really, that’s true of any area of emerging technology). So while last week I pushed back on slippery stats and misinterpretation of a popular study critical of EVs, I’m not ignoring other recent headlines which serve as useful reality-checks.
Money, cash, flows
For any startup, becoming the “next Google” (or Facebook, Amazon, etc.) would represent an unimaginable level of success. That is, unless you’re one of the aspiring new electric vehicle manufacturers who imply those companies were slow at getting to world domination. Per Eliot Brown in the WSJ:
It took Google eight years to reach $10 billion in sales, the fastest ever for a U.S. startup… A spate of electric-vehicle companies planning listings are vowing to beat its record—in some cases by several years.
Among the most ambitious are luxury-car maker Faraday Future, U.K.-based electric-van and bus maker Arrival Group, and auto maker Fisker Inc. Each has disclosed plans to surpass the $10 billion revenue mark within three years of launching sales and production.
Pulling off the feat is far from certain given unpredictable adoption of new technology and fierce competition. The WSJ notes, with restraint, that Arrival has “no revenue this year” and that ambitious EV supplier Ree Automotive “considers itself ‘pre-revenue’”. Elsewhere they observe:
Faraday Future has missed key product deadlines, amassed a pile of debt and lost top executives to a rival electric-vehicle startup. Its founder, who remains an executive, resigned as CEO amid his personal bankruptcy and was barred in China from running public companies.
You be the judge ¯\_(ツ)_/¯
Earnings calls are wakeup calls
A couple months ago, in reviewing next-gen automakers, I expressed some optimism about Canoo—with the caveat that they are “far from being a serious contender right now”. Just how far became clear a week later, in what market commentator Andrew Walker called “the single worst earnings call I've ever heard from a public company”.
From Walker’s YAVB blog:
Canoo went public late last year in large part on the promise of a partnership they had with Hyundai. When they reported earnings this week, they completely pivoted the business… The Hyundai partnership was dead… They also disclosed that their CFO was leaving alongside the partnership dying… [The executive chairman] basically had to admit that everything he was saying was a giant contradiction and the projections from the previous management team were bogus… Another analyst had to clarify if the CEO was still employed or not!
While that call set a pretty low bar, Canoo’s not the only one with a rough inaugural turn in the public spotlight. More examples from the WSJ’s Brown:
Romeo Power Inc. said it expected that revenue for the year would be no more than $40 million. That is far shy of the $140 million projected when it raised hundreds of millions of dollars from investors last year.
XL Fleet Corp… [originally] told investors it expected 2021 revenue to more than triple to $75 million; [now] its first-quarter revenue is expected to be $1 million, flat from the year before.
Reminder: hard things are hard
Before Tesla became the world’s most valuable automaker, it had its share of struggles—for years. In 2008, Elon Musk has said, the company staved off bankruptcy by three days, but even a decade later the process of bringing the Model 3 to market almost did in the company. Tesla’s long-term success still can’t be taken for granted, and unfortunately for new manufacturers, they’ll also be competing against the deep pockets and large-scale manufacturing capacity of GM, Volkswagen, Hyundai, et al.
Realizing the promise of new technology isn’t easy. Consider two recent bits of writing on areas outside of EVs. The first is a book excerpt on Virgin Galactic’s quixotic, tumultuous quest to commercialize space travel. More than 15 years after the company’s founding, Nicholas Schmide writes, their “grand plans had not worked out. The company was more than a decade behind schedule, while constantly dangling hope of imminent success.” Perhaps improbably, “Virgin Galactic seems once again dizzy with dreamy projections”…
In the other article, Alex Eule tackles the continually-delayed promise of autonomous vehicles. Less than a decade ago, there was a broad consensus that fully self-driving cars would be here by now. “80%” of the relevant tech has emerged in everyday cars, with features like automatic braking and blind spot warnings, but the missing “20%” (handling bad weather and unpredictable pedestrians) holds up the final product. And, perhaps more troublingly for the companies in this space, the public doesn’t seem to miss this!
The takeaway? “Innovation is costly, and not inevitable.”
Ha, "pre-revenue" is an incredible euphemism.
Totally agree that hard things are hard. I remember one of my fellow grad students (different department, I feel compelled to add) being completely unimpressed by the Chilean miner rescue. Something like "Well once they found them, of course they would get them out. Why is everybody celebrating today and watching nonstop?"