Cash is king for EV makers as soaring battery prices drive up vehicle production costs

In the transition from gas-powered autos to electrical, the gas each automaker is after nowadays is chilly exhausting money.

Established automakers and startups alike are rolling out new battery-powered fashions in an effort to satisfy rising demand. Ramping up production of a brand new mannequin was already a fraught and costly course of, however rising materials costs and difficult rules for federal incentives are squeezing coffers even additional.

Prices of the uncooked supplies utilized in many electric-vehicle batteries — lithium, nickel and cobalt — have soared over the last two years as demand has skyrocketed, and it could be a number of years earlier than miners are capable of meaningfully improve provide.

Complicating the state of affairs additional, new U.S. rules governing EV buyer incentives would require automakers to supply extra of these supplies in North America over time if they need their autos to qualify.

The outcome: new value pressures for what was already an costly course of.

Automakers routinely spend tons of of hundreds of thousands of {dollars} designing and putting in tooling to construct new high-volume autos — earlier than a single new automobile is shipped. Nearly all world automakers now keep hefty money reserves of $20 billion or extra. Those reserves exist to make sure that the businesses can proceed work on their subsequent new fashions if and when a recession (or a pandemic) takes a chunk out of their gross sales and income for a couple of quarters.

All that time and cash is usually a dangerous guess: If the brand new mannequin does not resonate with prospects, or if manufacturing issues delay its introduction or compromise high quality, the automaker may not make sufficient to cowl what it spent.

For newer automakers, the monetary dangers to designing a brand new electrical vehicle might be existential.

Take Tesla. When the automaker started preparations to launch its Model 3, CEO Elon Musk and his workforce deliberate a extremely automated production line for the Model 3, with robots and specialised machines that reportedly value effectively over a billion {dollars}. But a few of that automation did not work as anticipated, and Tesla moved some final-assembly duties to a tent outdoors its manufacturing facility.

Tesla discovered a variety of costly classes within the course of. Musk stated later referred to as the expertise of launching the Model 3 “production hell” and stated it almost brought Tesla to the brink of bankruptcy.

As newer EV startups ramp up production, extra traders are studying that taking a automobile from design to production is capital-intensive. And within the present surroundings, the place deflated inventory prices and rising rates of interest have made it tougher to lift cash than it was only a 12 months or two in the past, EV startups’ money balances are getting shut consideration from Wall Street.

Here’s the place a few of the most outstanding American EV startups of the previous few years stand relating to money readily available:

Rivian is by far the best-positioned of the brand new EV startups, with over $15 billion on hand as of the top of June. That must be sufficient to fund the corporate’s operations and growth by means of the deliberate launch of its smaller “R2” vehicle platform in 2025, CFO Claire McDonough stated through the firm’s earnings name on Aug. 11.

Rivian has struggled to ramp up production of its R1-series pickup and SUV amid provide chain snags and early manufacturing challenges. The firm burned about $1.5 billion in the second quarter, however it additionally stated it plans to scale back its near-term capital expenditures to about $2 billion this 12 months from $2.5 billion in its earlier plan to make sure it could possibly meet its longer-term targets.

At least one analyst thinks Rivian might want to increase money effectively earlier than 2025: In a notice following Rivian’s earnings report, Morgan Stanley analyst Adam Jonas stated that his financial institution’s mannequin assumes Rivian will increase $3 billion by way of a secondary inventory providing earlier than the top of subsequent 12 months and one other $3 billion by way of extra raises in 2024 and 2025.

Jonas presently has an “chubby” score on Rivian’s inventory, with a $60 worth goal. Rivian ended buying and selling Friday at roughly $32 per share.

Luxury EV maker Lucid Group does not have fairly as a lot money in reserve as Rivian, however it’s not badly positioned. It ended the second quarter with $4.6 billion in money, down from $5.4 billion on the finish of March. That’s sufficient to final “effectively into 2023,” CFO Sherry House stated earlier this month.

Like Rivian, Lucid has struggled to ramp up production since launching its Air luxurious sedan final fall. It’s planning massive capital expenditures to develop its Arizona manufacturing facility and construct a second plant in Saudi Arabia. But not like Rivian, Lucid has a deep-pocketed patron — Saudi Arabia’s public wealth fund, which owns about 61% of the California-based EV maker and would virtually actually step in to assist if the corporate runs in need of money.

For probably the most half, Wall Street analysts have been unconcerned about Lucid’s second-quarter cash burn. Bank of America’s John Murphy wrote that Lucid nonetheless has “runway into 2023, particularly contemplating the corporate’s lately secured revolver [$1 billion credit line] and incremental funding from numerous entities in Saudi Arabia earlier this 12 months.”

Murphy has a “purchase” score on Lucid’s inventory and a worth goal of $30. He’s in contrast the startup’s potential future profitability to that of luxurious sports-car maker Ferrari. Lucid presently trades for about $16 per share.

Unlike Rivian and Lucid, Fisker is not planning to construct its personal manufacturing facility to assemble its electrical autos. Instead, the corporate based by former Aston Martin designer Henrik Fisker will use contract producers — world auto-industry provider Magna International and Taiwan’s Foxconn — to construct its automobiles.

That represents one thing of a money tradeoff: Fisker will not must spend almost as a lot cash up entrance to get its upcoming Ocean SUV into production, however it would virtually actually give up some revenue to pay the producers afterward. 

Production of the Ocean is scheduled to start in November at an Austrian manufacturing facility owned by Magna. Fisker may have appreciable bills within the interim — cash for prototypes and ultimate engineering, as effectively as funds to Magna — however with $852 million readily available on the finish of June, it shouldn’t have any hassle overlaying these costs.

RBC analyst Joseph Spak stated following Fisker’s second-quarter report that the corporate will seemingly want additional cash, regardless of its contract-manufacturing mannequin — what he estimated to be about $1.25 billion over “the approaching years.”

Spak has an “outperform” score on Fisker’s inventory and a worth goal of $13. The inventory closed Friday at $9 per share.

Nikola was one of many first EV makers to go public by way of a merger with a special-purpose acquisition firm, or SPAC. The firm has begun transport its battery-electric Tre semitruck in small numbers, and plans to ramp up production and add a long-range hydrogen fuel-cell model of the Tre in 2023.

But as of proper now, it in all probability does not have the money to get there. The firm has had a harder time elevating funds, following allegations from a short-seller, a inventory worth plunge and the ouster of its outspoken founder Trevor Milton, who is now facing federal fraud charges for statements made to traders.

Nikola had $529 million readily available as of the end of June, plus one other $312 million out there by way of an fairness line from Tumim Stone Capital. That’s sufficient, CFO Kim Brady stated throughout Nikola’s second-quarter earnings call, to fund operations for one other 12 months — however more cash will likely be wanted earlier than lengthy.

“Given our goal of retaining 12 months of liquidity readily available on the finish of every quarter, we are going to proceed to hunt the fitting alternatives to replenish our liquidity on an ongoing foundation whereas making an attempt to attenuate dilution to our shareholders,” Brady stated. “We are fastidiously contemplating how we will doubtlessly spend much less with out compromising our crucial packages and cut back money necessities for 2023.”

Deutsche Bank analyst Emmanuel Rosner estimates Nikola might want to increase between $550 million and $650 million earlier than the top of the 12 months, and extra afterward. He has a “maintain” score on Nikola with a worth goal of $8. The inventory trades for $6 as of Friday’s shut.

Lordstown Motors is in maybe probably the most precarious place of the lot, with simply $236 million readily available as of the top of June.

Like Nikola, Lordstown noticed its inventory worth collapse after its founder was pressured out following a short-seller’s allegations of fraud. The firm shifted away from a manufacturing facility mannequin to a contract-manufacturing association like Fisker’s, and it accomplished a deal in May to sell its Ohio factory, a former General Motors plant, to Foxconn for a complete of about $258 million.

Foxconn plans to make use of the manufacturing facility to fabricate EVs for different firms, together with Lordstown’s Endurance pickup and an upcoming small Fisker EV referred to as the Pear.

Despite the appreciable challenges forward for Lordstown, Deutsche Bank’s Rosner nonetheless has a “maintain” score on the inventory. But he isn’t sanguine. He thinks the corporate might want to increase $50 million to $75 million to fund operations by means of the top of this 12 months, regardless of its resolution to restrict the primary production batch of the Endurance to only 500 items.

“More importantly, to finish the production of this primary batch, administration should increase extra substantial capital in 2023,” Rosner wrote after Lordstown’s second-quarter earnings report. And given the corporate’s difficulties thus far, that will not be simple.

“Lordstown must exhibit appreciable traction and optimistic reception for the Endurance with its preliminary prospects in an effort to increase capital,” he wrote.

Rosner charges Lordstown’s inventory a “maintain” with a worth goal of $2. The inventory closed Friday at $2.06.