Why EV startups should have held back before merging with a SPAC – TechCrunch

The Boom of Blank Checks which made the dream of many electric vehicle manufacturers a reality of going public may be coming to an end.

One of those companies, Faraday Future, is even at risk of delisting, according to a filing with the U.S. Securities and Exchange Commission last week.

Faraday Future, Lordstown Motors, Lucid Motors, Nikola and Canoo – nearly all of the EV makers that have taken a shortcut to an IPO by merging with a publicly traded shell company – have come under scrutiny by the SEC, driving down their once sky-high valuations.

Faraday tells a cautionary tale. The seven-year-old EV company, which has yet to launch a vehicle, went public by merging with a special purpose acquisition company (SPAC) in July last year.

However, a few months later, a report by activist short seller Hindenburg Research led to an internal investigation that resulted in pay cuts for its two top executives and the firing of others. Hindenburg, a New York-based investment firm, has sounded the alarm for several EV makers that have gone down the SPAC route.

Among the main findings of the investigation, Faraday had misled investors when he said he had received more than 14,000 deposits for his long-awaited FF 91 vehicle. In fact, many of these bookings were actually passive, unpaid indicators of interest.

When you don’t meet your projections, you really get hammered. That’s when investors start to sue. John Loehr, Managing Director of Automotive and Industrials, AlixPartners

Last week, after the SEC subpoenaed several executives suspected of making other misrepresentations, Faraday said the investigation could delay the filing of its 2021 annual report. Nasdaq said the non- compliance with these guidelines put the company in danger of being delisted from the stock exchange.

When the boom will collapse

Over the past two years, a slew of new electric vehicle companies — including startups that have yet to generate revenue or launch a commercial product — have merged with SPACs to raise funds to reinvent transportation and to achieve their vision of an electrified future. But analysts say these once-promising companies could soon be sold for parts – or disappear altogether.

“Automotive manufacturing is not a new entrant-friendly business,” said John Loehr, managing director of the automotive and industrial practice at consulting firm AlixPartners. “You need large production volumes to make money.”

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