The Great American EV Follies

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There are, believe it or not, more than 1,400 electric vehicle startups in the United States, a majority of which most of us have never heard of.

Rivian Automotive Inc., Canoo, Lucid Motors, Nikola, Faraday Future, Fisker Automotive, Bollinger Motors, and Lordstown Motors are but a few. Some have corporate and even foreign government backing.

Some of the models appear sleek and beautiful. Others are quite odd looking. Only a handful of these startups have actually started to produce vehicles. It turns out that building cars is an extremely costly process, especially with today's supply chain constraints, which means these cars aren't likely to be any less expensive than what legacy manufacturers will offer.

Overcoming these challenges during these inflationary times, perhaps transitioning into a recession, will only present additional burdens. Consider that Rivian earlier this year has increased the prices of its R1S and R1T models prices to $84,500 and?$79,500.?The RT1 pickup truck -- lauded by critics as being excellent -- is priced about $20,000 higher than Ford's F-150 Lightning.

It is important to note that none of the EV startups have yet turned a profit or can even foresee a time when they might become profitable. Meanwhile, they burn through billions of investment dollars, which include monies provided by certain states in the form of financial incentives.

These states, most prominently Georgia and North Carolina, are banking on their respectively chosen EV startups to establish assembly plants and supply chains within their borders that will employ thousands of their citizens. I submit that such thoughts are a pipe dream, a speculative bet at best, at worst an irresponsible use of tax dollars.

Furthermore, I believe that all EV startups will fail despite the fact that some have corporate backing and that of certain foreign countries. While the market for battery electric vehicles will continue to grow worldwide and in the United States, none of the spoils will go to the startups. All will go to the legacy automakers that have respective track records of producing millions of cars and trucks.

What once were the sleeping giants -- the legacy automakers -- are now awake and pouring hundreds of billions of dollars into the EV space. With that happening, the startups will simply lack the resources to produce vehicles at scale. Consider:

* Ford will spend $50 billion through 2026 on EVs and battery tech.

* General Motors will spend?$35 billion?through 2025 Meanwhile, GM and LG are using a?$2.5 billion DOE loan?to build three US battery factories.

* Toyota will spend $70 billion to reach its goal of reaching 3.5 million battery electric vehicles (BEVs) by 2030.

* Over the next five years, Volkswagen is spending around $73 billion) on EVs. Global deliveries for the company's BEVs grew 27% in the?first half?of 2022.

I haven't even mentioned Stellantis, Mercedes, BMW, Honda, Nissan, and Hyundai, all of which are spending tens of billions on EV platforms.

As EV adoption accelerates, look for these legacy automakers to continue expanding their role in the industry. And you honestly expect these cash-strapped EV startups to compete with that?

Tesla, the Proven Pioneer

Tesla, truly an industry pioneer, proved that making electric vehicles was viable. I no longer consider Tesla a startup as it has been turning out vehicles since 2009 and will make about 1 million vehicles this year, dominating the EV market in the U.S. with a 70 percent market share. Tesla produced over 365,000 vehicles over the last 3 months alone.

(Compare that to Lucid, which is turning out 40 to 50 units a day, or Rivian, which has produced about 15,000 vehicles to date.)

For what it's worth, Tesla founder Elon Musk tweeted last week that the company has started production of its long-awaited all-electric semi-truck and will make its first deliveries to PepsiCo in December.

Now, let's look at what several EV startups have planned and how a few states have become smitten by them.

Guvnor Kemp et al.

Rivian in Georgia: "We Remain Undeterred"

It should be noted from the outset that I have no problem with the judicious use of financial incentives provided to a company with a track record of profitability and where there is an almost certain and substantial return on investment for a community.

But Georgia's lucrative $1.5 billion incentive package to electric vehicle startup Rivian Automotive Inc. was and is a crapshoot from the start.

Apparently, a Georgia judge agrees. Morgan County Superior Court Judge Brenda Trammell rejected the agreement between the local development authority and Rivian on grounds that the proposal did not appear feasible and failed to establish that it would promote the welfare of local communities.

Not surprisingly, Georgia state officials said last week they were disappointed by the judge's ruling.

“We remain undeterred in our efforts to bring high-paying, American manufacturing jobs to Georgia, and are currently assessing all legal options,” the Joint Development Authority (JDA) of Jasper, Morgan, Newton, and Walton counties and Georgia Department of Economic Development said in a joint statement.

I read that as doubling down, refusing to admit to the speculative nature of an incentive package awarded to an unproven company.

Apparently from the reviews, Rivian makes a fine electric pickup truck, the RT1. (It should be at a starting price of $79,500.) But that should not be the measuring stick. Rather, long-term financial viability should be. To say that Rivian's financials are a hot mess is an understatement.

The company expects a before-tax loss for fiscal 2022 to be $5.45 billion. It was $4.75 billion in 2021. Rivian projects to burn through over $21 billion in cash through the fiscal year 2025 with no profitability on the foreseeable horizon.

Given those bleak numbers, Rivian is, believe it or not, seen by investors as essentially the least dirty shirt in a bag of dirty laundry. The company began building vehicles for the first time in September 2021. It has produced a little more than 15,000 vehicles total through the third quarter of this year.

But wait, there's more.

Rivian is recalling nearly all of its vehicles to address a potential problem that could cause drivers to lose steering control. the recall was made after the company discovered a fastener connecting the upper control arm and steering knuckle may have been improperly installed.

In a regulatory notice posted this weekend, Rivian said the problem could lead to excess wheel camber or tilt, and in some rare cases, separation of the wheel, impacting the driver’s ability to steer the vehicle. To which I say, "Gulp." The recall campaign covers about 13,000 vehicles built in late 2021 and through September of 2022 at its factory in Normal, Illinois.

It's one thing when a legacy automaker, making millions of vehicles a year, faces a recall. Such a recall typically puts small pressure on the bottom line and modestly tarnishes a brand. But it is quite another when a recall happens to a startup. All I can say is stay tuned.

Rivian announced in December that the Georgia plant, with a proposed capacity to produce 400,000 vehicles a year and an expected workforce of more than 7,500, would be operational in 2024.

The incentive package granted to Rivian is?the state’s largest on record, with more than $700 million in local?property tax abatements, almost $200 million in job tax credits, $111 million for land and grading of the site, and $105 million in construction material tax exemptions. The state also agreed to $90 million for training and recruitment for the automaker, and tens of millions more in direct grants and wetland mitigation.

I will say it again, providing incentives to any EV unprofitable startup -- and they are all unprofitable with many not having any revenue stream -- in an environment in which legacy automakers are investing hundreds of billions into that same space is a bad bet anyway you cut it.

How certain Georgia officials do not see that is a mystery to me.

Guvnor Cooper et al.

North Carolina Gets SlimFast, No I meant VinFast

One might think that Georgia's mistake of betting public tax dollars on a largely unproven EV startup at a time when legacy automakers are investing hundreds of billions into the EV market would become apparent to other states. One would think.

But that did not dissuade North Carolina from awarding a $1.2 billion incentive package to VinFast, a Vietnamese company, which says it will build a $2 billion plant in the Tar Heel state, creating 8,100 jobs.

And like Georgia with Rivian, North Carolina's move was the largest incentive package in state history.

VinFast plans to build an assembly plant on 2,000 acres at the Triangle Innovation Point in Chatham County, North Carolina with a total investment of about $2 billion in the first phase. VinFast's future factory, so we are told, is designed to reach a capacity of 150,000 vehicles per year

Covering an area of about 2,000 acres, with two main areas: electric cars and buses production and assembly, and ancillary industries for suppliers. Construction was supposedly to begin this year and production is expected to commence in July 2024.

Vingroup Vice Chair & VinFast Global CEO - Madam Le Thi Thu Thuy and North Carolina Governor Roy Cooper held a signing ceremony in March of this year. Everyone smiled.

In July, VinFast opened six showrooms in California, including a flagship store at one of the trendiest malls in upmarket Santa Monica, though for now it is only taking orders as vehicles are not yet available. The company said in July that it had signed agreements with banks to raise at least $4 billion to help its U.S. expansion.

VinFast now admits that competing in the crowded and difficult US market, which is dominated by Tesla, will be a huge but worthwhile task.

"If we can make it there, we can make it anywhere,"?Madam Thuy told?Agence France-Presse.

VinFast says its goal is to manufacture some one million electric cars within the next five to six years. But it took Tesla nearly 20 years to get to that level of production. VinFast turned out 35,000 EVs in 2021.

Guvnor Stitt et al.

Tippy Canoo and Oklahoma, Too

The Canoo LV (short for Lifestyle Vehicle) may at first glance appear to be a water vessel propelled by a pair of paddlers, but it is actually a three-row SUV propelled by an electric motor. Or will be if it is ever built.

I should begin by saying that Canoo has yet to generate any revenue or produce a single vehicle other than prototypes and has indicated in SEC filings earlier this year that it may not have long to survive. Now doesn't that give you the warm and fuzzies?

And yet, somehow economic developers in Oklahoma and Arkansas have bought into the idea that it will somehow be able to compete in a market dominated by Tesla and the likes of Ford, GM, Toyota, VW and on and on, all of which are spending tens of billions each on EV platforms.

On the face of it, the most promising news for Canoo is that Walmart?signed an?agreement to purchase 4,500 all-electric delivery vehicles, with the option to purchase up to 10,000 units. But the Canoo is “hanging on by a thread,” writes Jessica Mathews, a Bentonville, Arkansas writer for Fortune Magazine.

Second quarter financials show as much. Canoo finished the first half of 2022 with just $33.8 million in cash and posted a loss of $164.4 million. That’s up from $112.6 million in the second quarter of last year.

The company signed a 10-year, $17.1 million lease in January to occupy a 270,000-square-foot building in Bentonville that is supposed to complement a larger U.S. manufacturing hub in the?MidAmerica Industrial Park?in Pryor, Okla. Construction there has not started.

Most revealing is an SEC filing on?March 31 in which Canoo said “there is substantial doubt about the company’s ability to continue as a going concern.”

“If we are unable to obtain sufficient funding or do not have access to capital, we will be unable to execute our business plans and could be required to terminate or significantly curtail our operations and our prospects, financial condition and results of operations could be materially adversely affected.”

Oklahoma has agreed to give?Canoo up to $15 million in cash?incentives over the next four years, including $10 million to help it build the Pryor factory if the company meets hiring targets and other goals.

In June, Arkansas Commerce Secretary Mike Preston told Arkansas Business there are still “no signed incentive agreements in place, and no incentive payments have been made to Canoo.”

He also said that “all proposed financial incentives with Canoo have safeguards in place to ensure that the company meets performance measures for both job creation and wage rates before receiving any incentive payments from the state.”

Closing Argument

?A this month’s North American International Auto Show, President Joe Biden declared: “The great American road trip is going to be fully electrified.”

Clearly, the automotive industry is betting hundreds of billions on change, even if range is still cited as a major deterrent for potential EV buyers. The auto industry recently passed the 5 percent mark of the EV market, viewed by analysts as a watershed moment before rapid growth.

But that growth will be born by legacy automakers who have built millions of vehicles in the past. The prospect of any EV startup being able to produce at a scale and compete is a long shot at best. There are only so many investment dollars available and they are being directed to companies who have been there and done that.

Let me reiterate?that I favor the use of judicious incentives for companies with a proven track record of profitability and where evidence of a return on investment to a community is virtually assured. But none of these EV startups can assure anything close to that. Nary a one.

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