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Go Green with GBO: Challenges mount for electric vehicle start-ups as Tesla dominance continues

The best-funded and run EV startup will struggle to eat Tesla's lunch right now

Electric vehicle behemoth Tesla chief Elon Musk introduced his breakthrough letter “S.” 100 years after the Model T debuted in 1908. The Model S and its superbly timed Superchargers shaped history as much as Ford’s gasoline-burning invention. As legacy automakers chuckled or dozed off, first-mover opportunity opened. A tornado of furious investment and seemingly infinite promise brought in other great dreamers. For the first time in years, other start-ups could emulate Musk’s tactics and succeed in the traditionally unfriendly car sector.

That early promise has led to a spate of EV firms that are struggling to launch or disappear, creating more victims than visionaries. Tesla’s spectacular rise appears to be an outlier. Warren Buffett said, “The auto business is just too tough.” at Berkshire Hathaway’s last annual meeting.

That start-up window is closing quickly. It might kill more than just Hail Mary plays like Lordstown, Faraday Future, Nikola, and Canoo. Rivian and Lucid, two newcomers with a prospect of long-term success, are also suffering.

Lordstown Motors, formed through political trickery, has issued a bankruptcy warning after CEO misconduct, a Department of Justice inquiry, and a flambé prototype. The Lordstown Endurance’s USD 170 million construction contract may be cancelled by iPhone maker Foxconn.

Foxconn will have to pay for an auto-building fantasy after deceiving Wisconsin with a big LCD complex and 13,000 jobs that never materialized. What Lordstown has to show for its hundreds of millions of dollars waste: 31 weak electric trucks. The company has exploited Ohio and aspiring autoworkers in the poor Mahoning Valley for five years.

Additionally, investors are fed up with scams. They want more than foolish claims that a new EV will “change the world.” In a slow economy and rising financing rates, start-ups and SPAC mergers are running out of money. Falling auto start-up stocks, due to low sales, are resulting in those businesses having trouble raising funds.

Lucid and Rivian, the most credible EV rivals, are inconsistent. Lucid lost over USD 1 billion in the first quarter delivering 1,406 units. The market value of Lucid shares is USD 12 billion, down 87% from its peak. The fact that Rivian will build 50,000 R1S and R1Ts by 2023 is encouraging. However, its market valuation has dropped from USD 153 billion following its public debutante ball in 2021 to USD 12 billion currently.

Lucid and Rivian have desirable and unique goods, unlike most businesses. VC Night business ideas didn’t appear on a cocktail napkin. war chests worth billions, including the Saudi royal wealth fund’s Lucid stake. North American factory output gives both consumer tax credits and business subsidies under the Inflation Reduction Act.

Lucid and Rivian, other black horses, appear to be nags. Nikola Motor founder Trevor Milton was found guilty of securities and wire fraud for misleading investors, including driving an inoperative vehicle downhill for a test film. Nikola now spends its time criticizing Milton as a “lone wolf” and “bad apple” and trying to launch electric and hydrogen fuel-cell semis and a futuristic hydrogen manufacturing facility and refilling network. Nikola’s company worth, which Milton inflated higher than Ford’s, plummets to 74 cents, revealing that the government is its best fuel: The company needs a USD 1.3 billion Department of Energy Loan and private funds to survive.

Faraday Future doesn’t have a market for a USD 180,000, China-backed electric SUV that was initially shown in 2017 and hasn’t left its California manufacturing. The stock of Canoo has fallen 96%. For people with short memories, Henrik Fisker is counting on Fisker, a successful automobile designer, who is now the EV industry’s top fake-it-but-never-make-it. The infamous Fisker Karma, the Solyndra of electric cars, caused this.

Fisker’s “change the world” motto helped him get a USD 529 million DOE loan in 2009. When the company didn’t pay or achieve production goals, its loan was revoked, and its “visionary” founder disappeared, leaving taxpayers to foot the NBA-sized bill.

Fisker definitely prefers “bygones” and “do-overs” to “has-beens.” Small quantities of Fisker Ocean SUVs, some with software faults, are leaving an Austrian Magna-Steyr plant. The company promises June U.S. delivery despite the Ocean’s lack of consumer purchase credits, which is a major disadvantage compared to the USD 7,500 credit on an American-made Tesla Model Y and VW ID.4 or the USD 3,750 credit on a Mustang Mach-e.

No huge deal. The ever-credulous, click-hungry media and Fisker say Foxconn will start making Fisker Pear SUVs in the cursed former GM plant that “built” the Lordstown Endurance. Rumor has it that these SUVs start at USD 30,000. Starting with Foxconn’s obvious lack of car-making experience and ending with Henrik Fisker, this unholy marriage makes no sense.

The best-funded and run EV startup will struggle to eat Tesla’s lunch right now. It sells electric cars and SUVs for many thousand dollars less than competitors, making it the 800-pound electric monster. Musk just revealed a new Mexican facility that could produce 2.5 million cars annually. Tesla plans to cut production costs by 50%, including battery prices, in the coming years. Tesla’s ability to lower prices while making enormous profits is putting pressure on other incumbents that have yet to benefit from EVs.

Tesla dominated the electric industry a decade ago, but that gap is closing. Think about the entire fleet: A Tesla battleship with all hands on deck from respected brands. Global automakers have pledged USD 526 billion to switch to electric vehicles by 2026. Like a toy boat in a bathtub, they will sink most startups.

Tesla’s net profit margins are 11.4% without environmental credits, roughly three times Ford’s whole ICE lineup. After Tesla’s average price dropped by USD 5,000. Before the cut, net profits topped 19%. General investors are concerned about how Ford or GM will compete with Tesla on expenses and produce enough money from electric operations to justify investor faith.

Ford CEO Jim Farley said Tesla has a USD 10,000 cost advantage on each electric vehicle it makes, which Ford is trying hard to close.

Any startup will struggle to match Ford’s production and development economies of scale, let alone Tesla’s.

Perhaps another Musk will outwit industry titans. EVs like seven-figure Rimacs and other luxury and sports cars may have a market, like ICE vehicles.

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