EV makers face cash squeeze amid soaring battery, production costs

Production of electrical Rivian R1T pickup vehicles on April 11, 2022 on the firm’s plant in Normal, Ill.

Michael Wayland / CNBC

In the transition from gas-powered autos to electrical, the gasoline each automaker is after lately is chilly arduous cash.

Established automakers and startups alike are rolling out new battery-powered fashions in an effort to satisfy rising demand. Ramping up production of a brand new mannequin was already a fraught and costly course of, however rising materials costs and difficult laws for federal incentives are squeezing coffers even additional.

Prices of the uncooked supplies utilized in many electric-vehicle batteries — lithium, nickel and cobalt — have soared during the last two years as demand has skyrocketed, and it might be a number of years earlier than miners are capable of meaningfully enhance provide.

Complicating the scenario additional, new U.S. guidelines governing EV purchaser incentives would require automakers to supply extra of these supplies in North America over time if they need their autos to qualify.

The end result: new price pressures for what was already an costly course of.

Automakers routinely spend tons of of thousands and thousands of {dollars} designing and putting in tooling to construct new high-volume autos — earlier than a single new automotive is shipped. Nearly all international automakers now keep hefty cash reserves of $20 billion or extra. Those reserves exist to make sure that the businesses can proceed work on their subsequent new fashions if and when a recession (or a pandemic) takes a chunk out of their gross sales and income for a couple of quarters.

All that time and cash generally is a dangerous guess: If the brand new mannequin would not resonate with prospects, or if manufacturing issues delay its introduction or compromise high quality, the automaker won’t make sufficient to cowl what it spent.

For newer automakers, the monetary dangers to designing a brand new electrical automobile will be existential.

Take Tesla. When the automaker started preparations to launch its Model 3, CEO Elon Musk and his crew deliberate a extremely automated production line for the Model 3, with robots and specialised machines that reportedly price effectively over a billion {dollars}. But a few of that automation did not work as anticipated, and Tesla moved some final-assembly duties to a tent exterior its manufacturing unit.

Tesla realized a whole lot of costly classes within the course of. Musk stated later known as the expertise of launching the Model 3 “production hell” and stated it almost introduced Tesla to the brink of chapter.

As newer EV startups ramp up production, extra buyers are studying that taking a automotive from design to production is capital-intensive. And within the present atmosphere, the place deflated inventory costs and rising rates of interest have made it tougher to boost cash than it was only a 12 months or two in the past, EV startups’ cash balances are getting shut consideration from Wall Street.

Here’s the place a few of the most distinguished American EV startups of the previous few years stand on the subject of cash readily available:

Rivian

Production of electrical Rivian R1T pickup vehicles on April 11, 2022 on the firm’s plant in Normal, Ill.

Michael Wayland / CNBC

Rivian is by far the best-positioned of the brand new EV startups, with over $15 billion readily available as of the tip of June. That must be sufficient to fund the corporate’s operations and growth via the deliberate launch of its smaller “R2” automobile platform in 2025, CFO Claire McDonough stated throughout the firm’s earnings name on Aug. 11.

Rivian has struggled to ramp up production of its R1-series pickup and SUV amid provide chain snags and early manufacturing challenges. The firm burned about $1.5 billion within the second quarter, nevertheless it additionally stated it plans to cut back its near-term capital expenditures to about $2 billion this 12 months from $2.5 billion in its earlier plan to make sure it could meet its longer-term objectives.

At least one analyst thinks Rivian might want to increase cash effectively earlier than 2025: In a notice following Rivian’s earnings report, Morgan Stanley analyst Adam Jonas stated that his financial institution’s mannequin assumes Rivian will increase $3 billion by way of a secondary inventory providing earlier than the tip of subsequent 12 months and one other $3 billion by way of extra raises in 2024 and 2025.

Jonas presently has an “overweight” score on Rivian’s inventory, with a $60 value goal. Rivian ended buying and selling Friday at roughly $32 per share.

Lucid

People check drive Dream Edition P and Dream Edition R electrical autos on the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.

Caitlin O’Hara | Reuters

Luxury EV maker Lucid Group would not have fairly as a lot cash in reserve as Rivian, nevertheless it’s not badly positioned. It ended the second quarter with $4.6 billion in cash, down from $5.4 billion on the finish of March. That’s sufficient to final “well into 2023,” CFO Sherry House stated earlier this month.

Like Rivian, Lucid has struggled to ramp up production since launching its Air luxurious sedan final fall. It’s planning huge capital expenditures to increase its Arizona manufacturing unit and construct a second plant in Saudi Arabia. But not like Rivian, Lucid has a deep-pocketed patron — Saudi Arabia’s public wealth fund, which owns about 61% of the California-based EV maker and would virtually definitely step in to assist if the corporate runs in need of cash.

For probably the most half, Wall Street analysts had been unconcerned about Lucid’s second-quarter cash burn. Bank of America’s John Murphy wrote that Lucid nonetheless has “runway into 2023, especially considering the company’s recently secured revolver [$1 billion credit line] and incremental funding from various entities in Saudi Arabia earlier this year.”

Murphy has a “buy” score on Lucid’s inventory and a value goal of $30. He’s in contrast the startup’s potential future profitability to that of luxurious sports-car maker Ferrari. Lucid presently trades for about $16 per share.

Fisker

People collect and take photos after the Fisker Ocean all-electric SUV was revealed at Manhattan Beach Pier on November 16, 2021 in Manhattan Beach, California.

Mario Tama | Getty Images

Unlike Rivian and Lucid, Fisker is not planning to construct its personal manufacturing unit to assemble its electrical autos. Instead, the corporate based by former Aston Martin designer Henrik Fisker will use contract producers — international auto-industry provider Magna International and Taiwan’s Foxconn — to construct its vehicles.

That represents one thing of a cash tradeoff: Fisker will not need to spend almost as a lot cash up entrance to get its upcoming Ocean SUV into production, however it should virtually definitely hand over some revenue to pay the producers in a while. 

Production of the Ocean is scheduled to start in November at an Austrian manufacturing unit owned by Magna. Fisker could have appreciable bills within the interim — cash for prototypes and closing engineering, in addition to funds to Magna — however with $852 million readily available on the finish of June, it should not have any hassle masking these costs.

RBC analyst Joseph Spak stated following Fisker’s second-quarter report that the corporate will doubtless want extra cash, regardless of its contract-manufacturing mannequin — what he estimated to be about $1.25 billion over “the coming years.”

Spak has an “outperform” score on Fisker’s inventory and a value goal of $13. The inventory closed Friday at $9 per share.

Nikola

Nikola Motor Company

Source: Nikola Motor Company

Nikola was one of many first EV makers to go public by way of a merger with a special-purpose acquisition firm, or SPAC. The firm has begun transport its battery-electric Tre semitruck in small numbers, and plans to ramp up production and add a long-range hydrogen fuel-cell model of the Tre in 2023.

But as of proper now, it most likely would not have the cash to get there. The firm has had a harder time elevating funds, following allegations from a short-seller, a inventory value plunge and the ouster of its outspoken founder Trevor Milton, who’s now dealing with federal fraud expenses for statements made to buyers.

Nikola had $529 million readily available as of the tip of June, plus one other $312 million accessible by way of an fairness line from Tumim Stone Capital. That’s sufficient, CFO Kim Brady stated throughout Nikola’s second-quarter earnings name, to fund operations for an additional 12 months — however extra money can be wanted earlier than lengthy.

“Given our target of keeping 12 months of liquidity on hand at the end of each quarter, we will continue to seek the right opportunities to replenish our liquidity on an ongoing basis while trying to minimize dilution to our shareholders,” Brady stated. “We are carefully considering how we can potentially spend less without compromising our critical programs and reduce cash requirements for 2023.”

Deutsche Bank analyst Emmanuel Rosner estimates Nikola might want to increase between $550 million and $650 million earlier than the tip of the 12 months, and extra in a while. He has a “hold” score on Nikola with a value goal of $8. The inventory trades for $6 as of Friday’s shut.

Lordstown

Lordstown Motors gave rides in prototypes of its upcoming electrical Endurance pickup truck on June 21, 2021 as a part of its “Lordstown Week” occasion.

Michael Wayland / CNBC

Lordstown Motors is in maybe probably the most precarious place of the lot, with simply $236 million readily available as of the tip of June.

Like Nikola, Lordstown noticed its inventory value collapse after its founder was compelled out following a short-seller’s allegations of fraud. The firm shifted away from a manufacturing unit mannequin to a contract-manufacturing association like Fisker’s, and it accomplished a deal in May to promote its Ohio manufacturing unit, a former General Motors plant, to Foxconn for a complete of about $258 million.

Foxconn plans to make use of the manufacturing unit to fabricate EVs for different corporations, together with Lordstown’s Endurance pickup and an upcoming small Fisker EV known as the Pear.

Despite the appreciable challenges forward for Lordstown, Deutsche Bank’s Rosner nonetheless has a “hold” score on the inventory. But he isn’t sanguine. He thinks the corporate might want to increase $50 million to $75 million to fund operations via the tip of this 12 months, regardless of its choice to restrict the primary production batch of the Endurance to simply 500 models.

“More importantly, to complete the production of this first batch, management will have to raise more substantial capital in 2023,” Rosner wrote after Lordstown’s second-quarter earnings report. And given the corporate’s difficulties to this point, that will not be straightforward.

“Lordstown would have to demonstrate considerable traction and positive reception for the Endurance with its initial customers in order to raise capital,” he wrote.

Rosner charges Lordstown’s inventory a “hold” with a value goal of $2. The inventory closed Friday at $2.06.

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