For the better part of a century, established automakers were protected by a moat of obstacles. Any startup that wanted to get into the business had to hire armies of engineers, invest massive amounts of capital and establish a nationwide network of retailers. Some tried but virtually none survived. Until now, that is.
Today we’re seeing a flurry of startups unmatched in number since the early days of the automotive industry. Thanks to the advent of special purpose acquisition companies (SPACs), startups can raise prodigious amount of money. Thanks to the gig economy they can hire the experienced talent they need. And thanks to the growing acceptance of direct sales to consumers, they no longer need a network of franchised dealers.
The results are obvious. We’re seeing all kinds of entrepreneurs starting new car companies. Investors are hungry for get-rich-quick returns and are eager to SPACulate that the upstarts will crush the established automakers with exciting electric cars and new business models. Maybe that will happen, maybe not. Here’s my read on some of the best-known startups where I rate their chances of survival on a 1 to 10 scale, with 10 being best.
Workhorse: 1
Workhorse placed its bets on landing a big contract from the U.S. Postal Service for a new generation of BEV delivery trucks. It designed a truck with hub motors, something none of the other startups committed to. Hub motors are an intriguing technology that offer superb packaging and potential cost advantages, but they’re largely unproven. The USPS operates a fleet of about 240,000 vehicles and there was probably little chance it was ever going to give such a large contract to an unproven company with unproven technology.
Lordstown Motors: 1
Lordstown committed one of the biggest sins of any startup. It bought General Motors’ massive +6 million sq.-ft. (560,000-sq.-m) assembly plant in Lordstown, OH. Even though it borrowed only $40 million to get the facility, the plant dwarfs anything that Lordstown could ever hope to fill for another decade – if ever. That money would have been much better spent elsewhere. Remember the startup credo: “Start small, think big, move fast.” That’s not what Lordstown did. Worse, its CEO is accused of allegedly misleading investors with claims of large orders for its trucks, which turned out to be largely nonexistent. The Securities and Exchange Commission is now investigating the company.
Canoo: 1
Like most EV startups, Canoo presented a really cool-looking pickup truck and van. But styling alone will never make a car company successful. What’s fresh today will be old hat tomorrow. Any company that wants to break into the auto industry has to bring something new to the party, something that sets it apart from the established automakers and gives it an advantage over them. While Canoo claims to have “pioneering technology,” it’s not clear what that is. None of the company’s literature describes anything that no one else is doing. Worse, Canoo has gone through a big management upheaval, and it too is under SEC investigation for potentially misleading investors.
Faraday Future: 5
Faraday Future was founded in 2017 but its founder, a Chinese entrepreneur, went bankrupt which caused all kinds of delays and triggered a huge management upheaval. But that may be behind it. It now has an experienced management team and hopes to raise the money it needs via investments from two Chinese state-owned companies and a SPAC that will get it listed on the NASDAQ. Faraday developed a great-looking electric car, the FF91, with voluminous interior room, gigantic display screens and neck-snapping acceleration. But it plans to price the car from $120,000 to $200,000 which guarantees very small production volume. It promises lower-priced models will follow, but by the time it launches them the market will be flooded with BEV competitors.
Nikola: 6
Let’s get right to the bad news. Nikola’s founder was caught lying to investors, which triggered not only an investigation by the SEC but also by the Department of Justice. So, he was forced to resign. But Nikola has a unique business plan, something that sets it apart from all the others: It wants to make fuel-cell semitrucks that will drive on dedicated shipping routes populated with fueling stations that make hydrogen on-site. That theoretically slashes fuel costs and provides a total-cost-of-operation far below conventional diesel semitrucks. Moreover, Nikola will lease these trucks and charge customers on a per-mile basis, including insurance. That eliminates most of the capex for truck fleets and gives them predictable monthly expenses. If Nikola can deliver on its promises, it has a good chance of surviving.
Lucid Motors: 6
Lucid is yet another startup with a cool-looking, expensive sedan with neck-snapping performance. In my book it also has a couple of strikes going against it. Lucid invested $700 million in a greenfield assembly plant outside of Phoenix. The plant ultimately will be capable of making 400,000 cars a year. That’s a big capital outlay for a large facility for a company that has never made a car. Worse, it’s located far away from suppliers, so logistics costs will be high. But Lucid also has a couple of things going for it. Its CEO/CTO was a chief engineer on the original Tesla Model S, and he’s got great firsthand experience in launching a new electric car company. Also, Lucid builds the battery packs for the Formula E racing series, so it has proprietary battery technology and deep experience in manufacturing them, which gives it a leg up on the other startups except Tesla.
Fisker: 7
Fisker has one of the most interesting and bold business plans of any EV startup. It’s pursuing an asset-light strategy in which it essentially outsources everything to suppliers except for design and retailing. Magna and Foxconn will do the engineering, manufacturing and program management. That unburdens Fisker of managing most of the day-to-day operations and allows it to deploy its capital in areas where it can outspend its competitors. Like all the startups, it likely will struggle to reach scale from a distribution and servicing standpoint. But its asset-light strategy differentiates it from other startups.
Rivian: 8
Rivian is in the fantastic position of having significant investments from investors such as Amazon and T. Rowe Price. So, there’s no need for it to go the SPAC route. Even more importantly, Amazon placed a large order for 100,000 of Rivian’s electric vans, something that must turn other startups green with envy. Public reaction to Rivian’s SUV and pickup has been sensational, suggesting retail sales could be good. Like Lordstown, Rivian bought an existing assembly plant for next to nothing. It’s a 2.6 million-sq.-ft. (242,000-sq.-m) facility that dwarfs what the company needs right now. Maybe it can grow sales enough to justify such a large plant. The key will be getting enough retail outlets and service facilities. But even if it turns out Rivian can’t make it on its own, it is in a prime position to be bought by a traditional automaker. (Rivian R1T pickup pictured above)
Arrival: 8
Arrival is a U.K.-based company with the most intriguing business model of all the startups. It will make electric buses and vans using micromanufacturing – another asset-light strategy. Thanks to having no stamping line, no body shop and no paint shop, it can set up its assembly operations in large warehouses for under $50 million apiece. Each plant will only make a specified number of vehicles for a local customer who already placed the orders. None of that “build it and they will come” mentality that all the other startups are following. This approach allows Arrival to tailor its vehicles to local needs and tastes, rather than try to sell a “one size fits all” product. This business model gives Arrival greater resiliency and flexibility than the other startups.
Tesla: 9
It may seem strange to include in a list of startups a company that has been selling cars worldwide for over a decade. But Tesla still has to prove that it’s more than just a fad. It still has not produced an annual net profit unless revenues from selling EV credits are included. Now the company must prove it can make an annual net profit simply from making and selling cars. That probably will happen once it gets its new assembly plants in Austin and Berlin up to line speed. Other challenges include greatly increasing its retail outlets and service centers. In the U.S., about 18 states ban direct sales to consumers, or limit Tesla to a handful of stores or less. Other states put up other roadblocks; Michigan, for example, forces Tesla owners to title their car in another state. Tesla’s enthusiastic owners have put up with the hassles, but it needs to expand beyond its fan base. Tesla has done an outstanding job of building up its own network of charging stations in the U.S., China and Europe. Now it needs to do the same thing with retail outlets and service centers if it expects to attract millions of new customers.
This is only a partial list of the startups that want to make electric vehicles. There are supplier and retail startups, too. It’s an unprecedented development for the auto industry that none of us have seen in our lifetimes. No doubt other startups will join the fray.
But make no mistake: The established players are going to fight like hell to keep what they’ve got. It’s going to be the greatest battle this industry has ever seen, and we won’t have to wait too long to see the results.
In just a couple of years we’ll find out if my rankings were borne out by reality.
John McElroy (pictured, left) is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit.
