Several electric vehicle (EV) startups are facing an uncertain future, with at least 18 predicted to deplete their cash reserves by the end of 2024, according to a recent Wall Street Journal analysis.
What Happened: The study indicates that many EV and battery startups that went public recently have experienced a significant drop in their cash flow. This includes high-profile companies like Nikola Corp. (NASDAQ:NKLA) and Fisker Inc. (NYSE:FSR), which previously garnered substantial investor attention with their ambitious industry-transforming plans.
However, these startups have been hit hard by rising costs and production problems. Three firms — Lordstown Motors, Proterra, and Electric Last Mile Solutions have already declared bankruptcy, while others such as Romeo Power (NYSE:RMO) and charging company Volta (NYSE: VLTA) have been sold at significantly lower valuations.
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While some of the remaining firms are trying to reduce costs and raise capital, the median stock for these startups has nosedived over 80% since their market introduction, wiping out tens of billions of dollars in market value.
The sudden reversal in the fortunes of these EV startups highlights the investment risks in a sector still in its early stages and vulnerable to unexpected changes. The increasing but unexploded demand, along with price reductions from market leaders like Tesla Inc. (NASDAQ:TSLA), is exerting extra strain on these fledgling firms.
Why It Matters: The journey to the finish line in the EV race is a daunting task, especially for those who are not Tesla or top Chinese EV manufacturers. The EV enterprise has been a high-stakes gamble, with profitability often appearing elusive. The surge in EV sales last year by 65% despite a contraction in automotive sales by 8% has failed to expedite EV adoption due to the substantial costs involved.
This has been exacerbated by Tesla’s price war initiated earlier this year, which many are struggling to survive. The bankruptcy filing by Lordstown and the more than 77% drop in Nikola’s stock since its launch underscores the challenges these companies are facing. Despite attractive value propositions, some players simply don’t have what it takes to compete in the EV race.
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