California EV startup Canoo became a publicly traded company on the NASDAQ stock exchange on Tuesday under the ticker $GOEV, marking an incredible milestone for the three-year-old venture.
Last week, Chinese EV startup XPeng began deliveries in Europe, just a few months after its own successful IPO in the US. Neither company is going to become the apocryphal “Tesla killer” anytime soon. But each has now succeeded at accomplishing major goals once shared by other EV startups that have failed or fallen by the wayside, like Byton and Faraday Future.
They’re not alone. Despite a major economic downturn brought on by the pandemic, billions of dollars poured into the electric vehicle space during 2020, lifting up companies like China’s Nio and Li Auto, and Lordstown Motors, Fisker Inc., and Nikola in the US. That faucet remains open, too.
Not all recipients of that money will survive. But this rush of interest in the space — accelerated by the meteoric rise in Tesla’s stock price this year — has surely provided some with enough cash to finally move beyond PowerPoint pitches and investor roadshows and start proving their worth on the road.
Alibaba-backed XPeng and Tencent-backed Nio are already doing this, having respectively delivered 4,224 and 5,291 vehicles in November. And when XPeng rolled its first exported electric vehicles off a boat in Norway last week, it accomplished something many of its peers have sought: expansion into new markets.
Selling vehicles in Europe was an explicit goal of Byton, which was also founded in China but fancied itself as a “global automaker,” with offices in Germany and the US. But Byton has now all but shuttered its North American operations, laying off hundreds across 2020, losing its CEO, and facing a potential roll-up of its Chinese operations into primary backer First Auto Works — the original state-owned automaker in China. In fact, Byton’s North American operation is apparently so destitute that it hasn’t paid its lawyers in a lawsuit against former CEO (and current Faraday Future CEO) Carsten Breitfeld, according to a previously unreported court filing.
Byton’s demise was striking, given that it had backing from such a powerful government-owned automaker. At one point not so long ago, that support made the startup seem far more legitimate than the rest. Byton was even the first of the many EV startups to complete its own factory.
That approach fell into stark relief with Nio’s, which in 2019 abandoned its own plans for a factory and instead decided to keep paying a contract manufacturer to make its electric cars. While this left Nio stuck paying a fee for every car it had its manufacturing partner build, it also meant the startup didn’t have to cover the massive cost of building out and running a factory — which was crucial when money got really tight in 2019 and 2020, according to Michael Dunne, head of ZoZo Go, a consulting group focused on the Chinese market.
“Nio said, ‘We’re not going to go that direction anymore,’ and investors originally said, ‘You’re not serious — you’re not going to have your own plant?’ Byton, meanwhile, goes that route and investors say, ‘I can count on these guys,’” Dunne says. But when both companies ran into financial trouble and the pandemic hit, Dunne says Byton’s factory turned into “an albatross.”
Now, Nio is arguably the second-most successful electric vehicle company behind Tesla (though still a very distant one) and just raised another $2.6 billion. XPeng is right there with Nio, and just raised $2.2 billion itself.
“Nio, a year ago, was in desperate straits and needed a bailout,” says Dunne, referring to a $1.4 billion deal the Chinese EV startup struck with the Anhui province earlier this year. “They were right at the edge, and then here comes Tesla with its meteoric valuation and everyone looks around and says, ‘What next?’ Since then, I’ve gotten so many calls from people saying: ‘Should we bet on XPeng? Should we bet on Nio?’”
Most EV startups, like California’s Canoo, are still just trying to get a vehicle into production. But, founded by former BMW executives who split from Faraday Future in 2017, Canoo has now accomplished something its forebear long sought: going public.
Faraday Future teased an IPO as far back as its earliest days in 2015, though, to be sure, there wasn’t much the startup didn’t talk about back then. Buoyed by its tycoon founder Jia Yueting’s fortune, Faraday Future aimed to release a super-luxury car crammed with technology and world-beating performance. The startup said it would make an EV as disruptive as the iPhone. It passed over cheap, already-built manufacturing facilities — including one that would have cost the company just $1, now occupied by Rivian — and instead announced it would build a $1 billion factory in the Nevada desert.
Jia became so known for his grand visions that he was derided in China as a “PowerPoint CEO.” Those ambitions were ultimately too much for Faraday Future to bear, too, as it has spent the years since struggling to make ends meet. Now, in the twilight of 2020, it’s Canoo that has become a publicly-traded company while Faraday Future languishes.
Canoo is one of the many companies to go public this year by merging with a “special purpose acquisition company,” or SPAC. This method of going public allowed companies like Canoo (and Nikola, and Fisker, and many automotive suppliers) to essentially shortcut the typical IPO process by merging with a SPAC that is already traded on one of the stock exchanges.
The urgency to get onto the NASDAQ or the New York Stock Exchange was due in large part to a sort of gold rush kicked off by Tesla, which saw its own stock price skyrocket across 2020. Big announcements from the likes of Ford and GM surely helped, too.
Whatever the reason, Canoo now has a few hundred million more dollars to play with and, theoretically, easier access to raising more money as it tries to bring its electric delivery vehicle platform to market in the next few years.
Canoo is just one example. Lordstown Motors, which didn’t even exist two years ago, went public this year via a SPAC merger and is targeting a 2021 release of its electric pickup truck. Fisker is doing the same. So is electric bus company Arrival, and charging company ChargePoint. The list goes on.
It’s worth noting that these accomplishments — going public, starting deliveries, entering new markets — have not come without a cost. In Canoo’s case, the startup is now in the hands of a businessman who pivoted away from focusing on an electric van for consumers. One of its founders is gone, and while another remains CEO for now, Canoo’s new chairman recently told The Verge he’s making no guarantees.
Nio, which started as an ostensibly independent company (as far as such a thing can exist in China), ultimately had to turn to the Chinese government for help. That relationship only appears to be deepening as Nio’s joint ventures in China get cozier with the government. Meanwhile, XPeng’s rise in prominence has increased the scrutiny on its alleged role in the theft of trade secrets from Tesla and Apple.
Nikola is perhaps the shining example of how quickly the recent rush of cash into the EV space can turn into a “The Monkey’s Paw” situation. Nikola was one of the first EV startups to go through the process of merging with a SPAC, and that deal vaulted the company from relative obscurity to “hottest new stock” status. But the resulting scrutiny sparked questions about potential self-dealing, financial misdeeds, and fraud. Nikola has since had multiple deals with potential customers fall apart, seen its stock price crash from its summer highs, and its founder has distanced himself from the company.
Other EV startups on the cusp of production that raised money before 2020, or through the more traditional private investment route, have made tradeoffs as well. After Lucid Motors languished in search of the funding required to build its luxury sedan and a factory in Arizona, it ultimately turned to Saudi Arabia — which is now the majority owner.
(The outlier here is Rivian, the Michigan-based EV company that aims to bring an electric pickup truck and SUV to market next year. It has raised some $6 billion and counting after playing things extremely close to the vest since its founding in 2009. Where startups like Canoo, or Faraday Future, or China’s Nio, loudly sought public offerings, Rivian raised its money in the private markets, finding big institutional partners like Amazon and Ford along the way.)
Most EV startups will take some bad with the good, as long as the alternative is oblivion, though. The failure of their peers and predecessors to follow in Tesla’s wake is still fresh enough that they know sacrifices are necessary to survive.
There are good reasons to be skeptical about how long this run can last, or whether it’s a “bubble.” How these startups withstand the scrutiny of being a public company, or one that’s finally delivering products to customers, or both in 2021 will help sort things out.
But that wake Tesla has created is bigger than ever, and if it sustains, it could provide cover for startups to falter without imploding, and for others to shoot their own shots as well.
To wit, this week I spoke with Fraser Atkinson, the CEO of GreenPower. It’s a small Canadian electric shuttle and bus manufacturer that has toiled away since 2007, surviving in part by securing government grants in the US, and by performing mergers with two different mineral companies.
GreenPower did a traditional IPO this year that yielded about $40 million. Atkinson said GreenPower could have done a SPAC merger, which could have generated much more cash. But he said he was wary it would bring in too much money.
“That was funding we couldn’t have possibly spent on any level of production that we have planned for the company over the next number of years,” Atkinson said. “It’s so tempting if you’ve [raised a lot of cash], the pressure is on to do something with that money, to do something transformative, whereas our approach is much more incremental in terms of building the blocks up to a company that can attain profitability.”
It’s hard to imagine any one of these companies striking that kind of tone just a year or two ago. But it makes a little more sense now, when money is flowing into the industry so freely.
Turning down money, in this economy? That might be the best sign yet that there’s finally real runway for the myriad startups trying to build a business around electric vehicles.