December 7, 2022

Nikola Corporation rang the Nasdaq Closing Bell from around the world.

Source: The Nasdaq

Electric vehicle startups that went public last year through SPAC deals are trying to prove themselves to Wall Street as investors become increasingly skeptical of their future and securities regulators scrutinize their books.

Canoo and Lordstown Motors recently held personal investor days to showcase their technology and new products following corporate governance reorganizations, Securities and Exchange Commission inquiries, and significant stock declines.

Others have launched promotional or marketing campaigns to attract potential buyers as Wall Street is closely monitoring vehicle reservations, an indicator of future sales. Lucid, which has announced a SPAC deal but has not yet gone public, launched a nationwide television campaign in December while Fisker CEO Henrik Fisker uses social media to generate a buzz and promote his company. The well-known automotive designer even launched a new line of Fisker clothing that includes t-shirts for $ 30 and sweatshirts for nearly $ 100.

The companies are part of a growing group of EV startups going public or announcing plans to do so with SPACs or special acquisition companies. Others included Nikola, Arrival, Faraday Future, Electric Last Mile, and a host of other auto and tech companies.

Despite the hype, none of the companies produced a salable vehicle, and some like Fisker and Canoo are more than a year away from producing their first vehicle.

Most of the deals were initially celebrated by investors who sent stocks through the roof and turned some founders into millionaires, if not billionaires, overnight. But the tide has turned on many of the companies after the SEC cracked down on cracks this year, including investigations, warnings to investors, and potential changes to accounting policies.

“Do I think there will be a correction? Absolutely. The public market is finding things out,” said Marco Marinucci, partner and head of Hella Ventures, which has interests in auto companies Wejo and AEye, which have announced SPAC deals. “I think we can already see that the appetite for a very early stage is decreasing.”

The CNBC SPAC 50 index, which tracks the 50 largest blank check deals by market capitalization prior to the merger in the US, has plummeted by about 4% since the start of the year. Post-merger SPACs are doing much worse – the CNBC SPAC Post Deal Index, which is comprised of the largest SPACs to hit the market that have announced a proposed acquisition, has fallen nearly 10% so far this year.

SEC involvement

A SPAC is a blank check company that is used as an alternative to going public because it raises funds to buy something but does not have its own business. SPACs are publicly traded companies that have no real assets other than cash. They are formed as an investment vehicle with the sole purpose of raising funds and then finding and merging with a privately held company. It’s a faster way to get a company public than a traditional IPO, but some have gotten into trouble.

At least three SPAC-backed automotive companies – Nikola, Lordstown Motors, and Canoo – have received inquiries from the SEC. Everyone has ousted the founders and CEOs of the companies. The companies have announced that they are cooperating with the SEC investigation.

The prototype of the endurance pickup from electric vehicle start-up Lordstown Motors Corp, construction of which will begin in the second half of 2021, can be seen on June 25, 2020 at the company’s plant in Lordstown, Ohio, USA.

Lordstown Motors | Reuters

Others, who announced deals like Lucid and Faraday Future, missed their target closing dates in the second quarter, which represents a potential red flag amid a cooling SPAC market and heightened scrutiny of SPACs by the SEC.

“I’m glad we’re not starting a SPAC today,” said James Taylor, Co-Founder and CEO of Electric Last Mile Solutions, in CNBC’s Squawk Box on Monday. “No question about it, there were some challenges in some SPACs.”

Electric Last Mile voted to go public in December through a reverse merger with blank check company Forum Merger III Corp. , which the EV company valued at $ 1.4 billion. Trading on the Nasdaq began on Monday.

The company also missed its original first quarter close, attributing Taylor to SEC review and new accounting guidelines for SPACs to treat warrants as liabilities rather than equity on their balance sheets.

The SEC is devoting significant resources to addressing emerging SPAC issues, new ideas and recommendations related to SPACs and the adequate protection of retail investors, SEC Chairman Gary Gensler said in May.

The slowdown in the SPAC market has been dramatic since the SEC increased its engagement. According to SPAC Research, 46 companies went public through SPAC deals between April and mid-June. This compares with an average of about 100 per month in the first quarter of the year.

“Lately, there has been a little more realism or practicality applied to whatever seems to happen after the company goes public,” Morningstar analyst David Whiston told CNBC. “You had the initial hype, but now you have the reality that you need to run.”

Whiston said, “For many of these companies like Canoo and Lordstown, reality has arrived.”

Canoo’s new electric pickup converts into a camper.

Source: Canoo

Prove your worth

Of the EV startups, Canoo and Lordstown saw the biggest declines in 2021. Canoo is down 28% while Lordstown is down 45% so far this year. They follow Nikola – the first high profile auto company to go public last June – which went from a top stock to a competitive company following SEC inquiries and the ousting of its chairman and founder. Nikola is down 47% since debuting in June but is up 18.4% this year.

New Canoo and Lordstown executives held investor events this month to help win back Wall Street’s trust. Both companies have ousted their founders and CEOs since going public.

Workers install door hinges on the body of a prototype electric endurance pickup truck at the Lordstown Motors assembly plant in Ohio on June 21, 2021.

Michael Wayland / CNBC

Lordstown held tours of its headquarters and factory in Lordstown, Ohio last week. Part of the tour included a pre-recorded employee who said the company had “real employees at a real plant”.

Canoo hosted an investor event the week before to redefine the company’s goals and priorities, including plans for a new Oklahoma factory. Canoo CEO Tony Aquila, who succeeded company co-founder Ulrich Kranz in April, promised investors that his team will have “big news or no news, real news or no news” if it tries to break away from its hyped past and To distance competition.

“It’s better to get out of SPAC puberty early,” he told CNBC during a video interview. “I was the first to reduce the volume to realistic levels. The previous team didn’t do anything wrong, they were just euphoric.”

Not all EV startups have done badly. Fisker, which went public in October, is up 115% since its debut, including a 32% increase in 2021.

– CNBC’s Yun Li contributed to this report.