Electric vehicle startup promises revenue growth sets records

Alphabet Inc.’s

GOOG -2.50%

Google was followed by Uber Technologies Inc., Inc.

UBER 2.37%

hit that mark within nine years of his first earnings, and then with Facebook Inc.

and automaker Tesla Inc., Inc.

TSLA -0.84%

surpassed $ 10 billion in revenue within 11 years of initial sales, according to a Wall Street Journal study of data provided by research firm Morningstar Inc.

Two other companies, the Israeli-based electric vehicle components supplier Ree Automotive Ltd. and Archer Aviation Inc., which plans to make a vehicle similar to an electric helicopter, expect to reach the mark within seven years of launching the product. Both of these – like Faraday, Teachd and Fisker – have either completed listings or are currently going public by teaming up with special purpose construction companies, or SPACs.

The projections for growth in the position of registers reflect the level of momentum for the start-up of electric vehicles, especially for those going public with the merging of SPACs, which are the listing shell companies on a stock exchange with the sole purpose of obtaining a private company to acquire. public. More than 10 electric or battery-powered vehicle companies that struck contracts with SPAC were valued in the billions of dollars before they made any income, as amateur traders and many investors traditionally has come to the vibrant sector.

Supporters say moving away from gas-powered cars should open doors for new brands. Much of the enthusiasm, investors say, is also due to the shocks from Tesla’s $ 665 billion market capitalization from electric vehicle maker. While its stock has fallen in recent months, Tesla shares rose more than eightfold in 2020.

Startups hoping to replicate Tesla’s success have opted for SPACs – a faster alternative to traditional public offering, with stricter regulatory requirements – and releasing records for investors showing how to their plans call for them to grow faster than Tesla did. These projections, which are strongly discouraged by rules in IPOs, are another important feature of how investors value the emerging companies. Expected growth is expected to lead to higher valuations.

The high ambitions and high ratings have led some analysts to say that the predictions are impractical.

Pavel Molchanov, an analyst at Raymond James who deals with the sector of clean technology, said all these projections require “a haircut. ”

Even with governments around the world pushing consumers away from gasoline-powered cars, there is expected to be a wave of new electric cars that could overwhelm consumers, Mr Molchanov said. “I think there is too much hope in terms of demand,” he said.

The companies and supporters say they have a very different market than the fastest growing companies of yesterday. Even the best tech companies can take time to become household names, but cars and trucks have such high price tags that few buyers will reach sales figures in the billions, they say .

Further, they say, the electric vehicle market has grown exponentially since Tesla’s inception, opening up the start-ups – many of which have raised huge chunks of funding early in life – to a wealth of suppliers that make production easier.

Simon Sproule, a spokesman for Los Angeles-based Fisker, said the company’s plan to rely on third-party manufacturers to build their cars will allow them to increase manufacturing far more. faster than Tesla did, while its first vehicle is targeting more of the mass market. .

“The shipping market we’re entering is a lot, a lot bigger,” said Tesla.

Reach, which is expected to go from no-revenue this year to $ 14 billion in 2024 with the sale of electric buses and delivery vans, promises operators will change large fleets of vehicles fast to electricity amid wider government efforts to reduce emissions.

“We believe this is an entry point for the rapid adoption of millions of electric vehicles,” said Avinash Rugoobur, president of Arrival.

Others with projections for rapid growth include Joby Aviation, which is estimated to have $ 20 billion in revenue in about 10 years, and electric car maker Lucid Motors Inc. , which is expected to reach $ 22 billion in sales by 2026. Lucid has already generated some revenue from battery sales and is launching its first car this year.

Before the companies deal with demand, some investors say a hurdle could come from manufacturing, a particularly challenging endeavor with the complex automated supply chain.

Gavin Baker, a major investor in Tesla in the early 2010s when he was portfolio manager at the joint venture company Fidelity Investments, said it was unlikely the companies would “go ramping up”. at a rate two or three times faster than Tesla did ”after the launch of its Model S.

“PowerPoint slides are easy to make; it’s relatively easy to make a few prototypes that look good and drive well, ”said Mr Baker, now chief investment officer at Atreides Management LP. “It makes great, high-quality reliable cars that are tough. ”

Initial rules regarding the prediction of IPOs begin publicly through SPACs because the contracts are officially, not public tenders that oppose a higher level of scrutiny from regulators.

This dichotomy has raised concerns among some venture capitalists and others who say speculative predictions may contribute to hype surrounding a company they would not find in an IPO.

“The real problem here is that it’s regulatory arbitrage – it’s a gap,” said Robert Jackson, a former commissioner with the U.S. Securities and Exchange Commission and a professor at New York University law school. . He said regulators should make it more difficult for companies to make such projections publicly available.

Some SPAC managers have been able to provide forecasts, saying they help beginners communicate their vision to investors.

Regulators are paying attention. SEC officials last week indicated that they are investigating the SPAC market.

Write to Eliot Brown at [email protected]