Fisker
With the technology disrupting the automotive industry, investors have seen the opportunity to secure exposure to potential winners – whether it be battery manufacturers, manufacturers of other forms of power storage, or the developers of the “lidar” sensors that according to some the key is to the development of self-driving cars.
According to a Financial Times analysis, the nine auto-tech groups that listed through a specialty procurement firm (SPAC) last year expected revenue of just $ 139 million between 2020 and 2020. These include QuantumScape, a battery company backed by Bill Gates. and Volkswagen; the hydrogen truck start-up Nikola; and the lidar company Luminar Technologies.
Although the past twelve months have been a popular market for technology groups doing conventional listings, bankers and lawyers say the SPAC process gives companies – and the vehicles that acquire it – much more leeway to announce future financial projections. For example, the nine automated technology companies predict that their revenue will reach $ 26 billion by 2024.
SPACs often justify stratospheric projections by pointing to large “addressable markets” such as those for electric vehicles, where even a small market share can be profitable and make valuations on future revenue forecasts look cheap.
“There is a regulatory arbitrage between the SPAC model and traditional IPOs,” said Gary Posternack, head of global M&A at Barclays.
‘In the marketing process around SPAC combinations, there is the ability to discuss projections or projections, while businesses are usually unable to provide the information. The regulators may eventually try to close this gap, but for now the difference creates real opportunities, ‘he added.
The money pouring into the sector – and not just via blank check vehicles – is a bet that electric vehicles will eventually become ubiquitous. Market research firm IDTechEx estimates that by 2040 EVs will make up 80 percent of the world market, while heavyweights such as Volkswagen and General Motors are investing billions of dollars to develop their own models.
But even if EVs become dominant, it will not happen overnight. And as the pioneering display of electric vehicle pioneer Tesla – now with a market value of nearly $ 800 billion – helps support the investment mania for automotive technology groups, venture capitalists specializing in supporting risky beginners warn of the potential dangers.
“If you predict that your first income is in 2025 and you need to build a model based on a product you have not yet built, I think it’s really difficult,” said Arjun Sethi, partner at Tribe Capital, a venture capital venture, said. based in San Francisco. “That’s one of the reasons you have venture capitalists.”
The short history of QuantumScape as a public enterprise underscores the volatility facing investors. At the end of December, shares in the group peaked at $ 131, up thirteen times more than the $ 10 that SPACs typically list.
QuantamScape, spelled out from Stanford University, has released data that they say shows advances in solid-state battery technology that could help improve the driving distance of electric vehicles. The market capitalization of the company, which expects no revenue and any profits for three years thereafter until 2024, briefly obscured that of Ford and Fiat Chrysler last year.
However, the stock has since fallen 60 percent from its peak. QuantumScape did not respond to a request for comment.
Luminar Technologies is another SPAC with a short but so far remarkable life as a public company. Shares in the group, which develop laser-based image sensors or lidars, which can be used for autonomous driving, have nearly doubled since listing in December.
The Silicon Valley company, founded by 25-year-old engineer Austin Russell, has signed a production agreement with Volvo starting in 2022, which sets it apart from the competition. But the valuation of about $ 10 billion dwarfs the car lidar market, which according to Gus Richard, analyst at Northland Securities, is worth $ 2.5 billion in 2025. Luminar declined to comment.
One senior Wall Street lawyer who has worked on numerous SPAC deals says that the enthusiasm of retail investors has been a key feature of the mania for the automotive technology sector.
‘If the trading strategy’ I’m going to buy across the spectrum because there will be winners and I know there will be losers ‘, it’s not a crazy investment strategy,’ ‘the SPAC adviser said.’ But not all the electric “Vehicle companies will not survive. They just can not, there are too many of them.”
Retail investors were among those caught up in the crisis that engulfed Nikola, an American electric truck startup and early beneficiary of the investment craze. After peaking in June, Nikola shares tumbled in September after short-selling Hindenburg Research claimed the company was a “complex fraud”. The founder, Trevor Milton, who retired in September, denied.
Despite the turmoil, shares in all nine of the automotive technology companies announced by SPACs last year traded well above $ 10, with an average price exceeding $ 20. Shares in nearly three-quarters of the 37 completed SPAC transactions last year year indeed trades more than $ 10. More than a third trades more than $ 20.
There is also no sign that the wave of interest has peaked. Lucid Motors, a group of electric vehicles in California controlled by the sovereign wealth fund of Saudi Arabia, which has not yet produced a single model, is in talks with one of the SPACs owned by the former Citigroup. investment banker Michael Klein has been launched, according to people with direct knowledge of the matter.
However, some people warn that the combination of the mania for auto technology and SPACs is likely to remain flammable this year.
“It’s not sustainable because at some point things are going to normalize and investors are now buying it blindly,” said a senior equity sales executive.
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