EV startups conserve cash as make-or-break moment approaches. Here's where everyone stands

Published Wed, May 24 202311:00 AM EDTUpdated Wed, May 24 20231:13 PM EDT

Electric vehicle startups are approaching a make-or-break moment. As legacy automakers increasingly ramp production of all-electric vehicles, cushioned by the profits of gas-powered models, a handful of EV startups are scrambling to conserve cash and stay in the mix. The last few years saw a wave of EV startups hit the public markets, all hoping to catch some of the lightning that had made Tesla 's stock surge. Many did see soaring share prices, for a while, but times have changed due to higher interest rates and growing investor skepticism. Now, for the aspiring EV giants that went public to so much fanfare, the game is a grim one: Can these companies reach profitability before running out of cash? Here's where things stand after the first quarter for six of the most prominent names. Rivian Rivian is still by far the best-positioned of the group, having raised nearly $12 billion via a perfectly timed IPO in 2021 and more since. The $11.8 billion it had remaining as of the end of March should be enough to fund the company through 2025, Chief Financial Officer Claire McDonough said during Rivian's first-quarter earnings presentation on May 9. Rivian's spending plans are still ambitious. The EV maker is putting a lot of money and effort behind its upcoming R2 vehicle platform, which will underpin a series of new models priced well below the R1T pickup, which currently starts at $73,000. The company is planning a new high-volume factory in Georgia to build the R2 models but has pushed off the R2's planned debut by a year, from 2025 to 2026, to help stretch its cash. Rivian is taking other steps to ensure its cash lasts as long as possible. It cut about 900 employees in February, or about 6% of its workforce. It's also working to take cost out of its current vehicles, with new Enduro electric motors made in-house as well as lower-cost lithium iron phosphate battery packs for the delivery vans it makes for Amazon and soon for new lower-cost versions of the R1T and related R1S SUV. The cuts are already bearing fruit. McDonough said Rivian's gross loss per delivered vehicle was "nearly cut in half" in the first quarter versus the fourth quarter of last year. The company also expects pricing gains. Rivian will soon finish delivering orders placed before March 1, 2022, when it raised prices on both the R1S and R1T about $12,000. These steps could help the company reach its goal of reporting positive gross profit sometime in 2024, McDonough said. If it succeeds, that will likely be a strongly positive catalyst for the stock. Rivian's gross profit, which is what it earns after factoring out manufacturing and selling costs, was negative $535 million in the first quarter. Analysts' reactions to Rivian's first-quarter report were generally upbeat. "We believe the improvements seen so far provide encouraging evidence that the company is progressing towards its positive gross margin target in 2024," Deutsche Bank's Emmanuel Rosner wrote on May 10, noting the company geared up to incorporate the Enduro motors and new battery packs more quickly than anticipated. Rosner has a buy rating on Rivian's stock, with a price target of $20. The stock closed Tuesday at $14.20. Lucid Lucid isn't in immediate danger of running out of cash, but analysts are growing concerned. The company still had $3.4 billion in cash and an additional $700 million in available credit lines as of March 31, but it lost almost $780 million in the first quarter alone. CFO Sherry House said during Lucid's May 8 earnings call its cash should be enough to fund operations at least until the second quarter of 2024. But what happens then? It's a question without an easy answer, given the challenges of raising cash in the current environment. Lucid cut 18% of its staff in March, about 1,300 workers, and like Rivian, it's working to take cost out of its vehicles to improve its gross profit margins in the near term. The company is also trying to restructure some of its freight contracts and drawing down its bloated inventories of parts and raw materials. But the biggest challenge may be demand. Lucid's Air sedan has received glowing reviews for its style, performance and range, but it's not selling as well as the company expected . CEO Peter Rawlinson has said Lucid will ramp up advertising in a bid to make more potential buyers aware of the Air, but the pool of buyers willing to spend six figures on a luxury EV from a new company in the current economic environment may be limited. A second Lucid, a big electric luxury SUV called Gravity, is expected sometime next year. Bank of America's John Murphy summed up the pros and cons in a May 9 note: "We view LCID as one of the most attractive among the universe of start-up EV automakers because it has class leading powertrain tech along with other key pieces of the puzzle." "That said, we expect it could take until 2027+ for LCID to breakeven on an operating and cash flow basis (prior 2026) and project it will need to raise more than $10bn in capital," Murphy added. Murphy has a neutral rating on Lucid's stock, with a price target of $8. The stock closed Tuesday at $7.55. Fisker Former BMW and Aston Martin designer Henrik Fisker, aiming to take a different path to building EVs, founded Fisker in 2016. Unlike Rivian and Lucid, Fisker doesn't have a factory and it isn't planning to build one. Instead, it's using contract manufacturers to build its vehicles. Global auto-industry supplier Magna International is producing Fisker's first model, the Ocean SUV. Taiwan's Foxconn will build its second model, a smaller car called the Pear. That means Fisker isn't burning nearly as much cash as rivals Lucid or Rivian, though it will give up some profit to pay those contractors — assuming it gets to profitability, of course. It also means the amount of cash Fisker had left as of the end of March, $652.5 million, isn't yet cause for alarm. The company's operating expenses were $121.6 million in the first quarter , but that included some one-time costs related to the start of production of the Ocean at a Magna plant in Austria. While Fisker is still awaiting final regulatory approval to sell the Ocean in the U.S., the good news is the SUV is finally in production after some delays. Still, Fisker cut its production guidance for 2023 to between 32,000 vehicles and 36,000 vehicles, from 42,400 in its original plan. Assuming the Ocean delivers on Fisker's promises, the company shouldn't have too much trouble selling those vehicles. As of May 8, it had about 65,000 reservations for the model, which starts at about $38,000. A possible caveat: The Ocean won't qualify for the new U.S. government EV incentives , as it's built in Austria. Fisker expects a positive gross margin of between 8% and 12% this year, due to its contract-manufacturing model. While it's likely to need more cash at some point, that shouldn't be hard to raise, assuming both production and sales of the Ocean go smoothly over the next several months. Or as Evercore ISI analyst Doug Dutton wrote before Fisker's earnings report, "Fisker is beginning to turn into a story of binary and 'show me' outcomes." Dutton has an outperform rating on Fisker's stock, with a price target of $15. The stock closed Tuesday at $6.69. Nikola Nikola was one of the first EV makers to go public via a merger with a special-purpose acquisition company, or SPAC, and it was also the first to be nearly undone by a short seller's report alleging wrongdoing by its founder. As it turned out, the report wasn't wrong. That founder, Trevor Milton, is now awaiting sentencing after being convicted of three counts of fraud in federal court last year. But Nikola is still around and it's executing a much more modest version of its founder's ambitious plan. While Nikola began shipping a short-range battery-powered version of its electric semitruck last year, the company's vision is focused on true long-haul semis — long-range electric trucks powered by hydrogen fuel cells that can refuel at a network of stations. That vision is close to becoming a reality. Nikola plans to begin production of its fuel cell truck in a few months and as of its May 9 earnings report , it already had orders for about 140 trucks from 12 different fleet customers. The challenge now is cash. Nikola had just $121.1 million remaining as of the end of March, but it was able to raise $96.5 million in early April and, on paper, at least, it has access to roughly $450 million more via deals to sell more stock. Meanwhile, Nikola is taking aggressive steps to control its spending. The company said earlier this month it has pulled out of a long-standing joint venture with Italian heavy-truck maker Iveco in Europe to focus entirely on building trucks and refueling stations for North America. It has also brought on a new partner, Voltera Power, with whom it plans to build and operate "up to 50" hydrogen refueling stations — a critical part of Nikola's offering — in North America over the next five years. In a note following Nikola's earnings report, TD Cowen analyst Jeffrey Osborne summed up the situation from an investor's perspective. "We believe that Nikola is well positioned to address the growing need for low emissions and zero-emission vehicles in the Class 8 trucking market," Osborne wrote. "However, we see the continued need to raise capital for the next couple of years remaining an overhang for the shares." Osborne cut his rating on Nikola's stock after the quarterly release to market perform, from outperform, with a price target of just $1. The stock trades for about 75 cents at current levels. Polestar Polestar began as a joint venture between Volvo Cars and its corporate parent, Chinese automaker Geely , which means its vehicles are built under contract on favorable terms. That has enabled the Swedish EV startup to quickly ramp production. It delivered just over 50,000 vehicles last year and said earlier this month it expects to deliver between 60,000 and 70,000 vehicles in 2023. The arrangement also means Polestar's burn rate isn't nearly as extreme as some of the other startups. The company had $884.3 million remaining as of the end of March, down from $973.9 million at the end of 2022. While it's not yet profitable, it posted a positive gross margin of 3.4% for the first quarter. But Polestar is still working to conserve cash, in part so it won't have to slow down development of future models if economic conditions worsen. It said it will cut about 10% of its workforce, or roughly 300 jobs, and has eliminated about 800 more roles it planned to fill in 2023. On the other side of the ledger, the Polestar 2 crossover will get a price increase for the 2024 model year, and the more-upscale Polestar 3 is now on track to launch early next year. Still, CFO Johan Malmqvist isn't ruling out an effort to raise more cash. "With continued support from our two major shareholders, we are closely monitoring the market and exploring potential equity and debt offerings to fund operations and business growth," he said during the company's first-quarter earnings call . Most analysts aren't concerned about Polestar's cash levels. As Deutsche Bank's Rosner put it in a May 12 note, "We believe Polestar's success will depend on its ability to build an attractive consumer brand, expand volumes beyond its core geography of Europe in China and the U.S., and launch the Polestar 3 and [upcoming flagship] 5 on schedule and cost." Rosner has a hold rating on Polestar's stock, with a price target of $4. The stock has been trading just above $3 since the company's May 11 earnings report. Lordstown Motors The math is grim for long-struggling EV truck startup Lordstown Motors . It had $108.1 million remaining as of the end of March, but it lost $171.1 million in the first quarter . Lordstown sold its Ohio factory to Taiwanese contract-manufacturer Foxconn, which plans to make EVs under contract at the facility, last May. Following that deal, the two companies agreed to a second deal in which Foxconn would invest $170 million in Lordstown, effectively setting Lordstown up as an EV engineering and consulting team for hire while giving it a path to get its Endurance pickup into production. But it now appears Foxconn won't go through with that second deal. In a regulatory filing on May 1, Lordstown said Foxconn had sent a letter alleging the startup was in breach of the deal because its stock had fallen under $1 a share for 30 consecutive trading days, triggering a delisting notice from Nasdaq. Three days later, in lieu of a typical quarterly report, Lordstown said in an unscheduled earnings filing it expects to end production of the Endurance "in the near future" if the deal with Foxconn doesn't go through. It followed that up with another filing, on May 11, noting Foxconn had missed a key deal deadline and things weren't looking good. Lordstown's shareholders approved a 15-to-1 reverse stock split at the company's annual meeting Monday. That will put the share price back above $1, at least for a while. But it's not clear that will help, as Foxconn's position appears to be Lordstown breached the deal when it received the Nasdaq notice. If so, the little truck startup that took over a shuttered General Motors factory to much fanfare in 2019 may come to the end of its road.