Chicago, IL – October 14, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Tesla TSLA, Canoo GOEV, Workhorse WKHS, Rivian RIVN and Lucid LCID.
Here are highlights from Friday’s Analyst Blog:
Once a struggling startup, electric vehicle (EV) pioneer Tesla has become the world's most valuable automaker. Inspired by Tesla's meteoric rise, a wave of ambitious EV startups emerged, eager to replicate its success. Between 2020 and 2021, many such companies went public via Special Purpose Acquisition Companies (SPACs), luring investors with bold promises of rapid production timelines.
However, the harsh reality of the EV market has hit many of these companies hard. Far from the promised success, several of these startups have faced significant financial struggles, operational challenges and bankruptcy, while others continue to fight for survival in an increasingly competitive and turbulent market.
SPAC mergers allowed many EV startups to fast-track their initial public offerings. Startups saw SPACs as golden opportunities to secure investment and chase the dream of becoming "the next Tesla." However, the excitement quickly faded as companies struggled with production delays, rising costs and high capital demands.
Investigations revealed that several of these startups had potentially misled investors with overly optimistic projections. As these companies failed to meet expectations, they rapidly burned through cash reserves. In an environment marked by inflation, high interest rates and slowing demand, funding options for startups have dried up, forcing many to confront harsh financial realities.
As it is, EV market demand has not been as strong as predicted earlier. Amid waning demand, even market leader Tesla has been slashing prices to move inventory, impacting its profitability. Also, as legacy automakers like Ford, General Motors, and Volkswagen ramped up their EV offerings, startups found it increasingly difficult to compete.
Many of the EV startups that rode the wave of optimism have since crashed into financial distress. Companies like Fisker, Lordstown Motors, Arrival, Electric Last Mile Solutions and Proterra have all filed for bankruptcy, highlighting the severe challenges facing the sector.
Fisker, known for its Ocean SUV, filed for Chapter 11 bankruptcy in June 2024. The company struggled with lackluster consumer demand, operational issues and significant cash burn. After failing to secure investment from a major automaker, Fisker was left without the resources needed to keep the business afloat.
British EV maker Arrival went bankrupt in May 2024 without ever making a sale, selling its assets to another EV startup Canoo after being delisted from Nasdaq.
Proterra, another notable name in the EV space, filed for Chapter 11 in August 2023, falling victim to an aggressive expansion strategy that drained its capital reserves.
Lordstown Motors, maker of electric pickups, filed for bankruptcy in June 2023 after a failed investment deal with Foxconn. By 2024, Lordstown had been restructured and rebranded as "Nu Ride," with investors primarily using the company to pursue litigation against Foxconn.
Electric Last Mile Solutions filed for bankruptcy in 2022 after an internal investigation revealed unreliable financial statements. Without sufficient financing and leadership, the company was unable to continue operations.
While many startups have already succumbed to bankruptcy, several others, including Nikola, Canoo, and Faraday Future, continue to struggle against the odds. They are fighting to stay afloat amid their own operational challenges and missed targets.
Nikola's founder, Trevor Milton, was sentenced to a four-year prison term in December 2023 for misleading investors about the company's products, severely damaging its reputation. Faraday Future warned shareholders in late 2023 that without a major cash infusion, it would likely be forced to file for bankruptcy as well.
Meanwhile, Canoo made headlines for its exorbitant spending, with its CEO's private jet bills reportedly twice the company's 2023 annual revenues. In April, GOEV expressed doubts about its ability to continue operating, stating that its current cash resources are insufficient for the next 12 months.
On Oct. 2, Workhorse was warned by Nasdaq for trading below $1 for 30 consecutive days. The company has until March 31, 2025, to regain compliance by closing at or above $1.00 for 10 consecutive days. Rapid cash burn and potential debt payment issues are contributing to its poor stock performance and risk of delisting.
Rivianand Lucid, two of the more prominent EV startups, seem better off than their peers but are far from profitable. Their combined losses exceeded $4 billion in the first six months of 2024. In the first half of 2024, Rivian incurred more than $2.8 billion loss in operations, while LCID recorded an operating loss of $1.5 billion.
Lucid, which had predicted in 2021 that it would produce 90,000 vehicles in 2024, now expects to manufacture just 9,000 this year. California-based Rivian missed quarterly delivery expectations in the third quarter of 2024. Additionally, due to parts shortages, it slashed its 2024 production guidance and now targets to build 47,000-49,000 EVs this year, down from its previous forecast of 57,000.
Even Tesla, the benchmark for success in the EV market, is feeling the pressure. TSLA missed Wall Street expectations for third-quarter deliveries in 2024, putting it at risk of experiencing its first-ever annual delivery decline. The broader slowdown in demand has triggered a price war within the industry, squeezing margins for established players. To combat cooling demand, Tesla has been slashing prices, which has eroded its gross margins.
While Tesla's rise to the top inspired a generation of EV startups, the realities of mass production, capital demands, and market competition have proven far more difficult than anticipated. Many startups have already folded, and those that remain are fighting an uphill battle to stay alive. Given the price war, pressure on startups is only rising. As traditional automakers continue to roll out new EV models, startups face even stiffer competition.
For newer entrants, it's a battle for survival in an increasingly crowded and competitive marketplace. Flushed with cash in 2020 and 2021, these startups have been largely unable to turn that early excitement into sustained production and profitability. It's becoming more and more clear that achieving Tesla-like success requires more than ambition and investor hype.
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