It is even more difficult when vehicle production costs increase. Manufacturers can’t get their hands on parts, and sales have been disappointing. To add to the pressure, Chinese companies trading in the United States find themselves caught in the tit-for-tat regulatory game between Washington and Beijing.
Until now, raising capital was the easy part. Investors rushed to tick off their ESG-friendly holdings, happily supporting anything that seemed technological and green. All the while, they seemed to ignore the basic requirement of a manufacturing company: can they actually make the product? And is it produced on a large scale? How quickly will it go from prototype to mass production?
Many upstart EV manufacturers have boasted of all sorts of artificial intelligence and smart driving systems. Yet they had to source spare parts from other companies, especially the main component – the batteries. They released big production forecasts, based on unlimited consumer demand and the inevitable need for companies to bow to regulatory pressure on emissions. Several have even opted for an asset-light model, subcontracting the manufacturing part of the vehicle.
Most investors loved the rhetoric. Now, withdrawing money becomes more difficult as rates rise. Investors will soon be forced to face another reality: production and manufacturing matter. It’s not just about being able to inflate chests; putting capital to work will have to go beyond adding fancy gadgets, software systems and vehicle specs. Meanwhile, even as car buyers are keen on electric vehicles, hampered supply and high prices are likely to hurt demand. The average cost of a new electric vehicle in the United States is $65,000, according to Kelley Blue Book estimates.
Barriers to entry are also increasing. Electric vehicle and battery companies that can’t produce or show viable products will become the laggards — if they can survive at all. In recent weeks, these companies seem to have become realistic in their plans.
Struggling firm Lordstown recently sold its factory to iPhone contract assembler Foxconn Technology Group for $230 million to raise cash, and said its ability to stay in business depended on securing more funding. Earlier this month, it entered into a joint venture agreement with the assembler to manufacture cars. When it went public almost two years ago, it hoped to make 2,000 vans, then 32,000 the following year. Now he plans to do 500.
A production agreement does not necessarily speed up the manufacturing process either. Foxconn has also teamed up with Lordstown competitor Fisker Inc. to manufacture cars. This is in addition to Fisker’s existing deal with another major contract manufacturer, Magna International Inc. But even with pros by its side, the company only expects to manufacture vehicles by the end of this year. year.
In Fisker’s public offering document, one of the risk factors listed was that “the company’s business model relies on outsourced manufacturing of its vehicles. The cost of tooling a manufacturing facility with a collaboration partner is high, but that cost won’t be known until Fisker enters into a vehicle manufacturing agreement. In fact, the EV company has even made it clear that “investors should not place undue reliance on Fisker’s statements regarding its production plans or their feasibility on schedule, if at all.”
Still, investors seemed confident; Electric vehicles were about to roll off the production lines. Blame Covid-19 or supply chains or geopolitics – the reality is that there aren’t many electric vehicles on the roads in 2022.
Even electric vehicle companies with big backers and political backing haven’t had it so easy and are only now starting to ramp up production and sales. Nio, XPeng and Li Auto only produce thousands of units per month. Elsewhere in the world, Lucid Group Inc., which is backed by the Saudi sovereign wealth fund, is setting up production in the kingdom and has signed a purchase agreement with the government for up to 100,000 cars.
Electric vehicle companies will no doubt face some growing pains and it’s obviously good to have bold plans. But someone has to make sure he keeps his promises. The danger now is that the hype will die down and take demand with it as consumers give up hope. In this case, we will end where we started. Investors must go beyond promises and pressure manufacturers to produce at scale and quickly.
More from this writer and others on Bloomberg Opinion:
• Electric vehicles and SPACs are a terrible and expensive match: Chris Bryant
• Elon Musk has it all wrong about subsidies: Anjani Trivedi
• In the electric car race, Ford is stuck in a hybrid: Liam Denning
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
More stories like this are available at bloomberg.com/opinion