Since it started selling its all-electric roadster more than a decade ago, Tesla has dominated the electric vehicle (EV) market. The firm has seen exponential growth over the years, eventually gaining a market valuation of more than $300 billion. But while investors have been salivating for Tesla stock for a while now, other EV makers have not been so lucky. In fact, players in the young EV industry have had a relatively hard time securing capital.
Take Steve Burns, for instance. Although his company, Lordstown Motors, has already designed an electric truck, acquired a plant and machinery from General Motors, and racked up thousands of orders, he struggled to raise capital. However, like several other EV makers, he has found an alternative way to raise revenue. Last month, Lordstown Motors merged with a special purpose acquisition company (SPAC), a move that will snag the EV maker $675 million in capital and a listing on Nasdaq.
And unlike a traditional initial public offering (IPO), which can be a lengthy process, a SPAC merger takes only a couple of months. “The traditional IPO time is maybe a year and a half,” says Burns. “We are in a race to be the first with electric trucks. We want to get it done and get to the business of building the vehicle.”
Sometimes called blank-check companies, SPACs provide small or economically distressed firms with capital and the ability to list their shares on a stock exchange. They raise money from investors without having a dedicated business plan and then find a business to buy within two years. If that fails, the company folds, and the funds are returned to the original investors. The past few years have seen increased interest by SPAC investors in the electric vehicle industry, especially as more governments look toward net-zero economies.
Back in June, EV maker Nikola, which anticipates making heavy trucks powered by hydrogen fuel cells and electricity, also merged with a SPAC. Although Nikola hasn’t even started official production, investors have set its valuation at around $15 billion, more than half of Ford Motor’s valuation. According to SPACInsider, this year’s SPAC activity by dollar volume has almost doubled from all of last year, setting a record of $31.3 billion.
The EV industry still isn’t a sure thing, and given the current economic climate, investors have been wary of investing in EV makers. Boon Sim, the founder and managing partner of Artius Capital Partners, surmises it perfectly: “It’s always challenging to do a big IPO above $1 billion, especially in today’s volatile environment and the time it takes to file and tell your story to investors.”
One company worth watching in this space is Net Element (NASDAQ: NETE). NETE is a global financial solutions company that recently announced an agreement to merge with a California-based privately held electric vehicle company. Once that deal is completed, all eyes will be on the new company fares in the EV industry.
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