The EV startup boom is over. Companies are now trying to avoid a bust

By last year, the world was supposed to have three-wheeled electric cars powered by roof-mounted solar panels. Cities were to see electric buses flooded with natural light and padded by soothing grays reminiscent of a luxury Manhattan apartment. Commercial deliveries would zip across the nation in matte electric vans, carrying more stuff for less money.

EV startups, the subject of seemingly limitless industry buzz, raised millions of dollars from investors and would-be customers who were told that an electric future was just around the corner.

Instead, many of the stewards of that future are struggling to pay their bills. They are contending with higher costs, government probes, lawsuits, C-suite turnover and investor burnout in a high-interest-rate environment. For many, the EV startup boom is turning into a bummer.

"There's definitely a sense of fatigue," said Jeff Osborne, a senior analyst focused on the sustainability and mobility technology sectors at TD Cowen, an American investment bank owned by Canada's Toronto-Dominion Bank. "These stocks, putting it bluntly, are dramatically out of favor. It's very unclear who's going to win."

Of the 10 EV startups reviewed by Automotive News, only four have enough cash on hand to cover a year or more of operating expenses, and only a couple can cover more than two years of their cash burn, according to their most recently available Securities and Exchange Commission filings. Several, including Nikola Corp., Faraday Future Intelligent Electric Inc. and Arrival have identified doubt about their abilities to continue as a going concern, are facing lawsuits by investors or government probes from agencies such as the SEC — or are dealing simultaneously with more than one of these issues. Some have been the subject of embarrassing short-seller reports by investment research firms. And for the most part, the products they promised to investors and the public remain out of reach.

To be sure, companies in every industry raise money on promises they're not sure they can keep. It's exceedingly rare for startups of any kind — let alone automakers — to succeed. But the EV startup market has seen a particular slide of optimism from the rosy days of 2020.

In 2020, companies and investors saw an opportunity. Then-presidential candidate Joe Biden pitched incentives for drivers to swap older cars for electric vehicles made in America. After he won, Biden pledged to build 550,000 EV charging stations. At the same time, California Gov. Gavin Newsom issued an executive order requiring that all new passenger vehicles sold in the state be zero emission by 2035.

Firms such as FedEx Corp. and Amazon.com Inc. made investments and brokered deals to move toward electrification of their delivery fleets, and all eyes were on Tesla Inc.'s success. The company's stock gained more than 650 percent in 2020, giving it a market value of $658 billion at the end of that year — more than that of Ford Motor Co., General Motors and what was then Fiat Chrysler Automobiles combined. Low interest rates made it relatively easy to raise capital for those startups chasing the Tesla dream.

Before 2020, "in the U.S. market, it was sort of let the market figure it out and decide, and develop electric products and see how it goes," said Stephanie Brinley, an automotive analyst at S&P Global Mobility. "We've clearly shifted to a space where government policy is far more supportive of pushing the transition to electric vehicles, and that means there's money to be made."

At least 20 EV-related companies went public through special purpose acquisition company deals that year, including Nikola, Canoo Inc. and Lordstown Motors Corp. And even EV companies that did not, such as Workhorse Group Inc., saw increased publicity and investor interest.

Some investors and consumers might have been eager to believe ambitious claims by companies because of their stated values—among them, saving the planet — said Seth Goldstein, an equities strategist at Morningstar Research Services.

"Especially among retail investors," he said, "maybe there's a little less skepticism that goes on in the analysis" of EV companies.

And some of the companies overpromised — even to the point of allegations of criminality.

In September 2020, Hindenburg Research released its report on Nikola, saying it was "an intricate fraud." The company acknowledged a truck appearing to cruise down a desert road under its own power in a video was not. The SEC launched an inquiry. Ultimately, Trevor Milton, Nikola's founder, was convicted of fraud. Nikola settled with the SEC for $125 million.

In 2021, J Capital Research published a report calling Faraday Future "nothing but a bucket to collect money from U.S. investors and pour it into the black hole of debt created by its founder." A company spokesperson said "the substantive allegations of inaccurate disclosures" in the report "were not supported by the evidence reviewed." The SEC launched an investigation, and the company underwent a transformative restructuring.

Now, those companies are facing other pressures.

Nikola and Faraday Future in their 2022 annual filings both disclosed "substantial doubt" about their abilities to continue as going concerns.

Nikola had about seven months' worth of cash to cover operating expenses as of its latest SEC filing. The company did not respond to requests for comment. Nikola started sales of its battery-electric heavy-duty truck last year and expects to start production on hydrogen fuel cell trucks in the second half of 2023.

Faraday Future had less than a month's worth of cash to cover operating expenses. A spokesperson said in a statement that the company had raised additional funds and expects to receive an additional $65 million over the coming month, and that while there were "issues that impeded our progress in the past," Faraday Future plans to make its first customer deliveries of a vehicle in April.

Faraday Future "feels comfortable with its current liquidity supporting the start of production and delivery of our flagship FF 91 Futurist," said the spokesperson.

But those stumbles and others began to erode investor confidence in electric vehicles from other companies, too.

"You had companies' just outright fraud investigations early on, and that didn't help," said Robert Bollinger, the founder and CEO of Bollinger Motors. Some investors saw those investigations "as fodder for why they might be shy to invest."

In 2020, Bollinger Motors' net cash provided by financing activities was more than $20 million. The following year, that number was down to about $9 million. Mullen Automotive Inc. acquired a controlling interest in Bollinger late last year, but in June, Bollinger had cash to cover a little more than a month of operating expenses. Bollinger only just revived its original products, two electric off-road vehicles, and is still waiting to start production of a Class 4 truck.

Osborne of TD Cowen also described "one-off cases where people were trying to do something that was super exotic and had difficulty."

Arrival, for example, expected to begin production in 2022 of an electric bus that would be "lighter than other battery-electric buses" made with "lightweight recyclable composite materials" and built in "local Microfactories." Instead, the company deferred further investment in the bus program in August and reduced delivery expectations for a different vehicle from at least 400 to 20. Arrival, too, expressed "material uncertainties about the Company's ability to continue as a going concern" in its last earnings release.

Startups also had a tough time making a case to investors amid a changing interest-rate environment and growing inflation.

"Companies have to focus more on the fundamentals than they did in the heyday when capital was easily accessible," said Edward Hightower, CEO of Lordstown Motors. "We have to focus on the key elements that are required to succeed in the auto industry. We had to have put in the right disciplines in the product development and launch process, and a lot of those weren't necessarily here."

Lordstown announced Hightower's appointment as CEO in July 2022. Last month, the company paused production and deliveries of the company's flagship vehicle, the Endurance, and enacted a recall of 19 pickup trucks. The company said in an SEC filing it had produced 31 vehicles for sale as of Jan. 3.

Lordstown's most recent annual report said independent auditors and the company found "substantial doubt" about its ability to continue as a going concern.

Supply chain issues and government approvals have dogged companies such as Fisker Inc., which has about 20 months of cash on hand to cover expenses.

"We are working with suppliers that did have problems during COVID, for example, not having enough people, maybe not getting access to certain components they needed," said CEO Henrik Fisker. "That has definitely been difficult."

The company has been awaiting homologation in both the U.S. and Europe.

Other companies have had to contend with higher costs. Prices for some battery materials have increased over the last few years — the global price of nickel, for example, reached its highest point since 2007 just last year. BloombergNEF's annual lithium ion battery price survey showed a 7 percent increase in average pack prices in 2022 — the first time ever.

As earnings season wraps up, many companies swear they are the exception — that the imminent big funding round or impending product launch differentiates them from the rest. That their leadership's either disruptive and entrepreneurial style or deep industry expertise will push them ahead. That their in-house production or outsourcing will save them untold piles of cash or time. That the probes, lawsuits, turnover and production delays across their industry are either so minor as to be irrelevant, or so ancient that their mention is akin to exhuming the dead.

But EV startups may be failing to acknowledge the simple truth.

"Every single person massively underestimated the complexity and the time to get there," said Bollinger. "The gasoline automotive industry has been built up over the 100 years-plus, right?"

"To change it over," he said, "it's gonna take decades."