In a former age, investors were looking for the next Microsoft or Amazon—now they’re looking for the next Tesla.

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Posted on EVANNEX on November 18, 2020 by Charles Morris

The stock market seems to be reliving the 1990s—investors are pouring money into startup companies in a new industry, many of which have yet to produce any revenue or profits. However, this time it isn’t computer and internet firms that are in the spotlight, but electric vehicle makers. In a former age, investors were looking for the next Microsoft or Amazon—now they’re looking for the next Tesla.

Above: Tesla's Model X (Twitter: Tesla Greater China)

The latest hot acronym is SPAC, for special purpose acquisition company. This is the new way to go public—instead of going through the complex and time-consuming IPO process, a startup merges with a shell company that’s already listed on a major stock exchange.

Joann Muller, writing in Axios, recapitulates several of the sensible arguments that we heard (but did not necessarily heed) 25 years ago: the EV market is still young, and the picture of the EV ecosystem that will ultimately develop remains unclear. It’s inevitable that some of today’s red-hot stock market favorites will fail, taking investors’ money with them (in fact, a couple of the recent headline-grabbing startups have already been flashing warning signals).

Some emerging EV-builders are following the Tesla strategy—start with a high-priced luxury vehicle, then (hopefully) leverage the lessons learned to work on a mass-market model—and a couple have former Tesla execs on the team. Of these, the most likely to succeed is Lucid, which has former Model S Chief Engineer Peter Rawlinson at the helm.

Fisker, which has a history of strife with Tesla (Tesla sued Fisker in 2008 for allegedly using stolen trade secrets to build its Karma plug-in hybrid) went public in October. The revenant company has announced plans for several interesting EVs, but has yet to produce a vehicle.

For investors with a taste for the exotic, there’s also a crop of Chinese startups—Nio and Xpeng have each posted attention-getting gains since going public.

Above: This week, Wall Street further embraced the EV market as evidenced by Tesla's invitation into the S&P 500 (YouTube: Bloomberg Quicktake: Now)

One of the most exciting e-mobility sectors is the commercial vehicle market. Lordstown Motors, which started trading in October, and sister company Workhorse, a public company of long standing, have both delivered eye-catching gains for early investors.

Nikola grabbed headlines (and loads of investor cash) with a plan to build hydrogen fuel cell trucks, and got another big boost when it announced a partnership with GM. However, investors’ ardor cooled after it emerged that Nikola would be using GM’s fuel cell technology (not vice versa), founder Trevor Milton jumped ship, and evidence emerged that a video of the company’s prototype was not quite what it seemed.

A couple of the most promising EV manufacturers have not yet announced plans to go public—Proterra, which has sold as sold over 950 buses to 120 fleet customers across North America, and Rivian, which is building electric vans for Amazon, and has an electric pickup truck and SUV in the works, will doubtless attract plenty of investor cash if and when they decide to go this route.

It’s not only vehicle manufacturers that have been tapping the equity markets. Battery pack manufacturer Romeo Systems, powertrain provider XL Fleet, and solid-state battery innovator QuantumScape, all recently went public through SPAC deals.

Charging infrastructure is another rapidly developing and startup-rich segment. This is a field that’s far more complex than it may appear. Yes, charging an EV is simplicity itself, but behind the plug there’s a rapidly developing ecosystem of companies, including equipment manufacturers, network providers, installers, and companies that provide various software solutions. As was the case back in the internet era, it can be difficult to figure out exactly what some of these companies do, so let the investor beware.

Most observers of the charging scene are skeptical that there’s much profit to be made from simply operating charging stations—ongoing costs are high, and profit margins seem likely to remain low. However, companies that provide enabling hardware and software (“selling picks and shovels to the miners” as we called it during the internet boom), may thrive. The big banana in this space is the newly public Chargepoint, which has assets at every link in the charging value chain.

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Written by: Charles Morris