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
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
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
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
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
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
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
"Don't get distracted by all that -- don't get distracted by the
share price," Mr. Healy said.
Write to Eliot Brown at email@example.com
(END) Dow Jones Newswires
October 21, 2020 09:29 ET (13:29 GMT)
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