WHAT do Canoo, Fisker Inc, Rivian Automotive Inc, Arrival Ltd, Lucid Motors Inc, Karma Automotive, Lordstown Motors Corp and Nikola Corp have in common? They are all electric vehicle, or EV, start-ups that have yet to make a single vehicle but have either already raised, or are in the process of raising, billions of dollars through reverse mergers with blank-cheque special purpose acquisition companies, or SPACs. Throw in names like Shanghai-based NIO Inc and XPeng, which already trade on the tech-heavy Nasdaq bourse, and you get plenty of pure-play EV firms whetting the appetites of investors who want to hitch a ride on the next Tesla Inc.

If you have been hiding under a rock with no internet access for the past decade, you would probably have missed the rise and rise of Tesla and investors’ infatuation with the EV pioneer. Co-founded in 2003 by Martin Eberhard and Marc Tarpenning, Tesla took off when the duo pitched their idea to Elon Musk, a serial entrepreneur who agreed to invest US$6.5 million in the firm’s initial Series A round. The rest is history. Defying his critics and several brushes with bankruptcy, Musk went about making Tesla a player that others must catch up with.

Tesla listed in late June 2010 at US$17 a share for a valuation of US$1.7 billion. If you had held on to what has been one of the most volatile stocks on earth from its IPO day 10 years ago to end-August when the stock peaked, you would have gained a whopping 12,400%! A US$10,000 investment in Tesla 10 years ago would be worth over US$1.34 million at the peak two weeks ago. A 27% pullback in recent weeks has not changed the Tesla story.

Not surprising, then, that everyone wants to be the next Tesla.  There are now more than a dozen EV start-ups in the US alone and nearly 500 companies have registered to manufacture EVs in China. Making EVs is no child’s play and sponsors need to raise billions of dollars before they can bring their vehicles to market. In the US, the boom in SPACs has been a godsend to EV start-ups. By mid-September, the total value of listed pure-play EV makers had touched US$600 billion (RM2.5 trillion), exceeding the entire US$580 billion of the traditional global auto industry despite making up only a fraction of new-vehicle sales.

Nikola in trouble

Yet, as investors learnt last week, the more money EV start-ups raise, the more mindful they need to be. Trevor Milton, the outspoken founder of hydrogen trucking start-up Nikola, was forced to step down after it was revealed that he had made hugely inflated claims about his fledgling firm and misled investors about its technology. Unlike other EV start-ups targeting cars, Nikola focused on Class 8 trucks. In June, it merged with an SPAC for a US$3.3 billion valuation. Nikola shares soared 650% after the reverse merger, giving it a market valuation of US$34 billion only to plunge when short seller Hindenburg published a scathing report earlier this month. Unlike Tesla, which uses lithium-ion batteries, Nikola uses using hydrogen fuel cell technology for its trucks. Earlier this month, it struck a deal with General Motors (GM), giving the US auto giant US$2 billion worth of shares in exchange for parts and components to help build Nikola trucks. The US Securities and Exchange Commission is  now investigating Nikola and founder Milton.

Rivian, an EV start-up based in the Irvine suburb of Los Angeles, has already raised over US$6 billion from investors, including Amazon.com, which invested US$700 million early last year, and Ford Motor Co, which chipped in US$500 million. Rivian also has a solid and growing order book. Amazon alone has placed an initial order of 100,000 EV delivery vans. As the e-commerce behemoth grows, it would need hundreds of thousands more vans and Rivian is its partner of choice.

Over the past two years, Rivian has showcased new vehicle designs such as a premium electric pickup truck dubbed R1T and a sport utility vehicle (SUV) named R1S, both of which could have a range of up to 400 miles on a single charge, with the cheapest models priced at around US$70,000. It plans to roll out its first vehicle in late 2021.

Another high-profile player is Lucid Motors, a start-up based in Newark, California, not far from Tesla’s Fremont plant. Founded in 2007, it is now led by CEO Peter Rawlinson, who was the chief engineer for Model S, Tesla’s sedan. Lucid raised over US$1 billion in development capital from Saudi Arabia’s Public Investment Fund two years ago. Earlier this year, the company unveiled its first car, Lucid Air, an upmarket luxury sedan meant to compete with upscale luxury cars that will go on sale next year. Earlier this month, it revealed its luxury SUV, the Lucid Gravity, which will also go on sale next year.

Lucid’s two models beat Tesla’s comparable top-of-the-range models with a 10% better efficiency rate because they have impressively light motors, says Pierre Ferragu, New Street Research’s tech analyst in New York. But, he notes, anyone can make a great electric luxury car if they are charging US$169,000 for it. The maiden Lucid Air model is 80% more expensive than the closest Tesla model. At that price point, it is unlikely to sell more than tens of thousands of cars each year, he reckons. “The future of Lucid is a fiasco,” Ferragu says. Maybe not, if it can engineer a reverse merger with a big SPAC soon.

In mid-August, EV van start-up Canoo announced that it would list at a valuation of US$2.4 billion by merging with Hennessy Capital Acquisition Co IV, a so-called blank-cheque SPAC. The reverse merger will allow Canoo to raise enough money to help bring its first vehicle, a Volkswagen microbus-lookalike van first unveiled last year, to the market next year. Based in Torrance, outside Los Angeles, Canoo was founded in 2017 by executives from BMW and Faraday Future who quickly raised US$1 billion from VC firms. Earlier this year, it signed a co-development deal with South Korea’s Hyundai Motor Group for an electric platform based on its skateboard design for future Hyundai and Kia EVs.

Subscription model

Canoo’s real differentiator, however, is not its electric microbuses. It is actually its flexible vehicle ownership business model. Unlike a traditional automaker that sells you a new vehicle outright, Canoo only sells its vehicles through a subscription, by bundling together total vehicle ownership costs including financing, maintenance as well as service, charging and insurance. The company’s management believes this would attract a generation of consumers who look at outright car ownership as onerous and would rather buy a car subscription than be tied down to a high ticket purchase that will be burdensome for years.

Oh, by the way, just in case you are interested, subscription to Canoo’s seven-seat microbus, which has a 250-mile range on a single battery charge, will cost you US$1,000 per month. You can drive it for a year or so, return the vehicle and subscribe to another model or indeed a car made by another company.

Korean carmakers Hyundai Motor Group and its affiliate Kia Motors are also investors in another EV start-up, UK-based Arrival, which was valued at US$3.3 billion at its last funding round. Founded in 2015, the British EV firm has raised money from the VC arm of the parcel delivery firm United Parcel Service (UPS). Arrival makes electric delivery vans and earlier this year, UPS placed an order for 10,000 EV vans from the start-up. UPS, FedEx Corp and Amazon are moving to EV delivery vans because of their better operating economics. EV vans’ benefits include reduced emissions, lower fuel costs and up to 20% lower maintenance costs given fewer moving parts to service. The vans also require fewer specialised equipment and less labour to make, and have longer warranty lifetimes and steadily declining battery costs.

Another recent reverse takeover of an EV maker by an SPAC is that of Fisker. Founded by Danish-American auto designer Henrik Fisker, the eponymous start-up announced in July that it was merging with Spartan Energy Acquisition Corp, an affiliate of private equity giant Apollo Global Management Inc, at a US$2.9 billion valuation. Fisker is developing EMotion, an electric sedan, and the Fisker Ocean, an electric SUV. Unlike most EV firms that focus on vertical integration, Fisker plans to outsource its manufacturing to Canada’s Magna Automotive, just like Apple outsources its iPhone production to Hon Hai Precision Industry Co, and offer a subscription-based service for its cars like Canoo.

An offshoot of Fisker is Karma Automotive, another California-based EV maker now controlled by Wanxiang Group of China. Karma Automotive was formed five years ago by Wanxiang with assets purchased from Fisker Automotive for US$149.2 million in a bankruptcy auction. It makes Karma Revero, a luxury hybrid sports sedan. Karma Automotive expects to launch the US$130,000 Rivero GT, a fully electric model, before year-end. It has had discussions with several SPACs about a reverse merger and has also considered taking the IPO route if talks with SPACs do not work out.

A year ago, US President Donald Trump picked a fight with GM over its plant in ­Lordstown, Ohio. Founded last year, Lordstown Motors operates out of the same former GM assembly plant that has since been reconfigured. Lordstown focuses on commercial trucks. Four months ago, Lordstown reached a deal to merge with an SPAC called DiamondPeak Holdings at a valuation of US$1.6 billion. Lordstown’s main differentiation is its unique four-hub electric motor system, which is essentially a larger version of the hub motors found in electric scooters. While that helps reduce the number of moving parts to just the four wheels and potentially yields greater efficiency and reduced manufacturing costs, it can also mean high repair bills associated with damaged wheels.

The total market for plug-in hybrid and battery-powered vehicles is forecast to grow from US$95.4 billion in 2019 to US$430 billion in 2025.  Last year, 2.4% of passenger cars sold globally were electric. By 2025, over 13% of cars are expected to be EVs. The biggest driver of EV growth is China, where 25% of all car sales could be electric by 2025 compared with just 5% last year. Over the next 12 months, investors should expect to see more EV-related SPAC mergers to meet burgeoning demand. There is plenty of money to fund even some of the marginal players. Eventually, there will be consolidation in the EV space and more deals involving traditional automakers and EV start-ups.

Assif Shameen is a technology and business writer based in North America