Since we love cars, we will have several articles about the automotive industry especially in the EV space. So stay tuned!
As you might have seen from the recent news, Electric Last Mile Solutions Inc ($ELMSQ) filed for bankruptcy. Only after Bloomberg reported that they may run out of cash in June. It was quite shocking to many investors who bought into the SPAC not even a year ago and lost pretty much all their money.
Here is a lesson for you. Making cars isn’t easy. I have been in that industry and I know how hard it is to make a successful car. Why is it so hard? It takes lots of people and time. Not to mention all the cost around prototyping and having to work with vendors to put together about 15,000 parts to manufacture. And that’s if you don’t have any hiccups during the assembly process or a defect in any components.
One estimates that it will cost a company about $1 billion a year to manufacture a car. That’s only if they have a previous model and have the engine, platform and transmission they can re-use. If not, it can cost $6 billion. And my time at some of the domestic OEMs tells me that this is very accurate. It also, takes time, too. 2-5 years from the conception to launch and sometimes more. So imagine a company where you spend $6 billion and you are barely getting $500 in deposits…yeah, you are not going to last. Even $TSLA was on the verge of bankruptcy, according to Elon.
So what does this mean for investors? I think you have to be really picky with which EV companies you want to invest in and which ones to avoid. Here is a list
- Electric Last Mile Solutions Inc ($ELMSQ): worth looking into but we don’t see anyone acquiring them or how they will survive
- Phoenix Cars ($PEV): They thought they could raise $150 million (which again isn’t sufficient enough to build cars or trucks especially their big heavy trucks) but ended up raised a tenth of it. This, you need to avoid as well IMHO
- Electra Meccanica ($SOLO): not worth looking into
- Rivian ($RIVN): has $16.5 billion in cash so they can survive. The big question is, “do people want to buy their trucks?” Not anymore. They were cancelling orders after Rivian jacked up the price. And many people I have spoken to are waiting for Cybertruck. I think the price will go down further to around $12-$14.
- Lucid ($LCID): they are running out of cash. A recent financial report said they only have $5.4 billion in cash. Barely enough to make 2-3 cheaper models…only if they can generate enough cash through more dilution or selling enough cars, which we know the latter isn’t likely.
Conclusion: a car manufacturing is tough and it’s not meant for everyone. Only player I see remaining in the game is $TSLA, $NIO some ICE manufacturer pushing heavily into EV (e.g., Hyundai). Everything else, an opportunity to make money by shorting. But my prediction for the next Chapter 7, $PEV.
Don’t forget. Do your own DD before making any investment decisions.