By Eliot Brown 

Early this summer, electric-vehicle startups Hyliion Inc., Fisker Inc. and Lordstown Motors Corp. were tiny companies with staff numbers measuring in the dozens. Two had built little more than a prototype. None have reported any revenue.

Today, they are valued at more than $3 billion apiece by stock-market investors.

A frenzy has hit the sector. Buoyed by the surge in the stock price of electric-vehicle pioneer Tesla Motors Inc. and a rush of blank-check companies that take startups public, investors are hoping to find the future titans of an auto market transformed by a shift away from the internal combustion engine.

Two electric-vehicle startups have completed listings in recent months, while another four electric vehicle and battery companies have announced plans to do so. These all have little or no revenue.

Never before have so many companies with no revenue pursued a public listing at such high valuations, according to data provided by University of Florida finance professor Jay Ritter.

Companies at such a nascent stage are inherently risky and are typically funded by venture-capital investors as they build out assembly lines and sales operations. Instead, these startups are going public at a far earlier stage than is standard by merging with blank-check companies, before they have proven that they can manufacture their product or that they have a viable business model. Blank-check companies are publicly traded shell companies that merge with private companies, enabling the private firms to sidestep an initial public offering.

The rush to go public is the "product of a euphoric market," said Mike Volpi, a partner at venture-capital firm Index Ventures who invests in automotive technology and serves on the board of Fiat Chrysler Automobiles N.V.

He said new electric-vehicle companies are extremely hard to build in any market but all the more so now that large traditional auto makers all are focusing on electric.

"It's an industry that lends itself to scale -- it's very difficult for a newer guy to come along," he said.

Backers of the electric-vehicle companies say the forthcoming electric era of autos has opened the door for a host of new competitors and brands. Regulations in some countries and California requiring more electric vehicles are creating a whole market, investors say, and they are betting the giant auto makers will be unable to pivot fast enough to compete.

A handful of other companies with some revenue in the electric-vehicle industry have recently announced deals to go public. Those include two that reported less than $10 million of revenue in 2019 and a few others with more substantial sales figures.

Even if just one of the startups grows into a big electric-vehicle company, it could be worth tens of billions of dollars, investors say.

Fisker and its backers show revenue projections that make the company's stock look like a bargain. Fisker projects $13 billion in revenue by 2025, compared with none this year. As of early August it had 49 employees and a prototype. It is ramping up hiring and plans to strike numerous deals with other companies to manufacture cars it designs, Fisker said in securities filings.

One-year-old Lordstown Motors, which plans to make an electric pickup truck, said in an investor presentation that it projects $5.8 billion in revenue in 2024. It reported having around 100 employees as of September.

Before 2020, only five U.S. companies without any sales had ever gone public at a valuation of at least $3 billion, according to data from Mr. Ritter. The average three-year return for companies that go public with no revenue and $1 billion-plus valuations is negative 41%, Mr. Ritter said.

Even Tesla's stock price -- up more than fourfold this year -- has baffled many in the sector. Tesla Chief Executive Elon Musk said in May the share price was too high. The company is valued at around $400 billion, roughly five times as much as General Motors Inc. and Ford Inc. combined; it had one-twelfth their combined revenue in 2019. Some backers believe strongly in Mr. Musk as an innovator and that Tesla's head start will give it a substantial market share in a future dominated by electric vehicles.

Critics of the electric-vehicle investor enthusiasm point to Nikola Corp., which intends to build trucks powered by hydrogen fuel cells and batteries. After Nikola went public in June through a special-purpose acquisition company -- a SPAC, as the blank-check companies are called -- its valuation briefly surpassed $30 billion, making it worth more than Ford.

A report by a short seller in September alleging that Nikola exaggerated elements of its technology and progress sent the company's stock down more than 50%. Nikola's founder and then-executive chairman resigned amid the fallout. Both have denied allegations of fraud.

Blake Denton, 25, trades stocks on the Robinhood app. After watching Nikola's ascent, he figured other electric-vehicle companies might follow a similar path given the enthusiasm from retail traders.

He learned about Hyliion, which plans to mass produce electric drivetrains for semi-trucks, while looking through posts on the online message board Reddit. The company announced a deal to go public in June by merging with a SPAC called Tortoise Acquisition Corp. II, and buzz began to grow online, with some thinking it could be the next Nikola.

"I had invested in Hyliion on pure hype -- literally pure hype," Mr. Denton said. "I knew nothing about the company."

He said he sold after the price went up and made about $50,000.

Hyliion CEO Thomas Healy, 28, began gradually putting together plans to make a natural gas-and-battery-powered drivetrain that didn't need diesel after he graduated from Carnegie Mellon University with a mechanical-engineering degree. He founded the company in 2015, and as of June it had 52 employees, according to regulatory filings. It has raised $50 million, according to research firm Pitchbook.

Hyliion has produced fewer than two dozen of its initial product, a hybrid drivetrain Hyliion says turns trucks into something like a Toyota Prius. It has announced sales orders for over 1,200 units of a more advanced electric drivetrain, which it hasn't built yet. It projects no substantial revenue before 2022.

Hyliion sought to raise money this spring, and the investment bank advising it connected the company with Tortoise, which agreed to lead an investment of $560 million at a $1.6 billion valuation, Hyliion said in securities filings.

After the deal was announced, Tortoise's shares soared. Numerous posts on the Reddit forums frequented by Mr. Denton were devoted to SHLL, the company's stock ticker. On YouTube, amateur stock pickers made videos hyping Hyliion's promise. One called "Buy SHLL stock now?? In-depth Hyliion analysis" has more than 100,000 views.

The deal was completed this month. Hyliion has a market capitalization of around $3.5 billion.

Mr. Healy said he is trying to ignore YouTube and Reddit -- though he has seen some of the videos -- and stay focused on the company.

"Don't get distracted by all that -- don't get distracted by the share price," Mr. Healy said.

Write to Eliot Brown at eliot.brown@wsj.com

 

(END) Dow Jones Newswires

October 21, 2020 09:29 ET (13:29 GMT)

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