The only thing that I can see as an investment thesis is:
1. The whole auto industry is going to rapidly transition to electric only cars (not hybrid, but plug-in)
2. The established automakers are too slow, due to their size, bureaucracy, and relationships with component suppliers, unions, and dealers, to be able to efficiently make this switch
3. Therefore nimble electric vehicle startups are the smart bet.
I disagree with this thesis -- for example it will take several decades just to improve our electricity grid to handle a real rush of PEV, and those electricity utilities are a lot slower and more bureacratic than the mainstream automakers. And that's just one of many arguments against this thesis. Moreover there isn't enough data to suggest that people will accept PEV - you are talking about minuscule volumes so far and are betting everything on extrapolating exponential growth from a small base.
But at least it's not a crazy thesis. A case can be made to a rational person to justify these valuations, even if most rational people are going to be skeptical of this case.
Literally every major car maker has an EV on the market or is launching one this year. The problem isn’t the car makers, it’s that the market is still early.
Give it 10 years. There’s lots of kinks left to figure out that we take for granted in modern cars.
Most notably cold weather performance, weight, resell value, range, and longevity. Can a modern EV be expected to work fine in 20 years? An ICE can.
And no matter what everyone says, EVs are still kind of impractical. I rented a Tesla for a weekend (in SF) and it was terrible. We spent the whole time chasing chargers and ultimately almost destroyed the car according to the dashboard warnings. Finally found an available charger in the city with 3% battery left.
Any car is a symphony of parts with varying durability, and if anything an EV will have fewer parts. So I think for the traditional manufactures doing ICE & EV cars, we'll see the EVs last longer outside the battery. That's the nexus of the longevity worry and I'm interested in whether newer solid-state batteries for cars start to solve for overall lifespan?
I don't understand the insistence on being "fully EV." Just toss a 5 gallon tank and a small gas engine and generator in in every electric vehicle until batteries have a chance to iterate a generation or two.
Range anxiety is overblown and well past its expiration date as a concern for EV uptake. Tesla is selling half a million vehicles a year, and yet, we hear very little of folks running out of power on the side of the road. Go figure.
> I don't understand the insistence on being "fully EV." Just toss a 5 gallon tank and a small gas engine and generator in in every electric vehicle until batteries have a chance to iterate a generation or two.
Automakers have sold hybrids for two decades. The evidence does not support enabling selling hybrids for another two decades instead of moving to EVs now.
It might be overblown but since USA is a 3rd world country the lack of infrastructure for EVs becomes a real problem unless you’re a suburbanite with a garage.
When we rented a Tesla it was a public holiday which meant all the big parking garages in SF that showed up on Tesla’s map were closed. We had to limp around the whole city while the car yelled at us that we’re about to permanently damage the battery. When we finally found a charger it was a $20 uber ride home.
Overall “fantastic” experience.
Your edge case had a poor experience, but it isn’t the norm.
And in cities, which is where most people live, the EV infrastructure is not quite there yet. Making them impractical for 82% of Americans according to a quick google search on “percent of urban americans”
That said, I didn’t look into how dense these supoosed urban areas are and how many garages there are. Could be they count places like Mountain View as urban.
I have a friend that owns a towing company. They recently added a dedicated flatbed for dead electrics because "X mile range" trip planning doesn't account for going up mountains.
Good point though, more range and charging stations are still needed in mountainous regions.
Another possible solution is a mobile off-grid charging station. A van or truck or trailer full of batteries and charging equipment. If you run out of charge, it comes to you, you plug your EV into it, it charges your batteries enough to make it to the nearest on-grid charging station. Quite possibly a better option than a tow truck.
(You could even have a truck with a generator set and charger for mobile emergency charging. Not so environmentally friendly, but it would work.)
 https://www.caranddriver.com/news/a15346575/placebo-on-wheel... ("Placebo on Wheels: AAA Charging Trucks Seek to Remedy EV Range Anxiety, Prove Mostly Unneeded")
It is hard to say whether the failure of the idea is because it is never going to work, or because the market wasn't ready for it yet.
If they can get it down to 10 minutes, then yes, the wait time is better than load, attach, tow, detach sequence
Car manufacturers will need to keep their service centers happy by putting in serviceable parts. Tesla’s the only large exception since they lack a dealer network but they will eventually play the same game.
My best guess is that in 30 years, the majority of cars on the road are still going to be ICE. But in 100 years? Who knows, we might get a fantastic battery breakthrough or perhaps we'll be driving fusion powered cars :P
This isn't true. Japanese cars don't have the same reliability they did in the 90's. You're not gonna find anything like a 2JZ engine on an affordable car these days.
VW quality seems to be on the verge of falling off a cliff as they seem to be desperate to increase profits without improving quality.
Oddly enough I would mention Korean cars for being especially reliable, but then Hyundai and Kia got hacked the other day, so...
The other engine that comes to mind is the LS1, which was also developed in the 90s and is still used by GM today.
Outside of those two I'd start looking at supercars (I don't mean Porsche, I mean Koenigsegg) for engines that are as impressive.
Also I wonder what Norway is going to do if and when their offshore oil export business dries up?
The model 3 is too big and too pricey compared to things like the leaf.
Obviously Tesla doesn't cater to the entire Euro market. But to suggest that Telsa has to cater to all segments in order to be taken seriously is a rather weird bar.
Just from my perspective, owning an EV:
- cold weather performance: Yeah, range is decreased. You deal with it. I can still drive to my grandparents cabin with one fast charge that finishes before I've bought all the groceries I need for the stay. Day-to-day it's better than ICE. Never any problems starting the car, and you can pre-heat it, which is a huge plus.
- weight: Our EV is about 100kg heavier than the gasoline variant I think, but it's not designed from ground-up to be an EV. I think you can get 40-50kWh EVs without much weight penalty now. Not that added weight is a big problem for personal cars. Since the weight is so low, it's a benefit to roll resistance.
- range: Sure, this could always be better. But for a lot of people, once you get an EV, and get used to it, you start to flip your thinking from "I should buy one with the longest range I can afford" to "Dealing with charging isn't so bad after all, I should get an EV with the smallest range that's still practical, otherwise most of the battery is dead weight most of the time"
- longevity: "Can a modern EV be expected to work fine in 20 years? An ICE can." - OK, sure, it might still be running. But from my parents experience with 15+ year old cars it's not something I'm keen on dealing with. There are a lot of parts that starts to wear down around that time, and they had a lot of issues with expensive repairs that was barely worth it. The first Nissan Leafs are 10 years old now, and despite a bad battery architecture they're doing quite fine. If the batteries last that long, I think I'd rather have a 20 year EV than a 20 year ICE. The range might be crap, but it can still be useful as a second car for local errands, and it'll probably be much less likely to fail unexpectedly. You might also see third party affordable battery replacements be available in 5-10 years. If you replace the battery the car is essentially as good as new with regards to the drivetrain. Maybe even better than new, since batteries get better/cheaper over time.
- "And no matter what everyone says, EVs are still kind of impractical": True-ish, but that depends a lot on infrastructure. Here in Norway it's really not much of a problem at all. Half the supermarkets and all the shopping malls around me have fast chargers. Even IKEA has a bunch of them. Every road-side McDonalds. I think most apartment complexes have set up for doing over-night charging, you just need to pay for the charging box and installation. Even with out-door parking. This has ramped up really quickly the last 5 years. You just need that critical mass of EVs, and some government support (which for the US should hopefully be better the next 4 years). Remember that most of the charging stations models and companies didn't even exist when Norway really started ramping up 5 years back. It's getting easier every year.
The technology is good enough IMO. It's mostly about marketing and infrastructure. Most people prefer EVs after getting used to them. There's a lot of small benefits people aren't aware of (such as scheduled pre-heating in winter)
I think the US has bigger challenges than the rest of the world for a bunch of reasons (inefficient government, long-distance driving at high speeds, suburban sprawl, a love for SUVs, etc.). But even there I think you can start to see EVs taking off within 5 years with a bit of a push.
1. Battery electric vehicles are the inevitable future, so you can invest now (when it's possibly too early) or invest later (when it will definitely be more expensive). So far, the market seems to be on board with investing now.
2. Established automakers are ripe for disruption in the classic sense, not because they're too slow or too bureaucratic, but due to their opportunity costs. They make money now selling ICE vehicles and lose money when they try to sell electric vehicles. It feels like the Apple II to Mac transition but they don't have a Steve Jobs at the helm to force the issue.
3. Therefore, electric vehicle manufacturers are the smart bet for the long haul.
And, for what it's worth, as an EV owner, I'm absolutely on board with this thesis. Infrastructure changes will come fast once demand is there.
Unless you're taking into account the opportunity cost, I would expect the cost of investing in an electric infrastructure to be lower once the kinks have been worked out by early adopters.
On top of having a brand new set of expertise to shop for, the traditional automakers also will have to modify their existing factories. They'll have to do that eventually, but there might be some massive cost associated with adapting factories to the wrong tech.
So I guess one could compare its post-debt estimated value to this new startup as a upper bound since the startup doesn’t have that debt.
But auto making requires lots of capital so avoiding debt will likely not be possible as the company grows. Although if they keep valuations they can just sell stock and avoid debt.
I think going public early is better. VC’s and insiders have been capturing the lion’s share of early-stage growth returns. If companies go public earlier, more of that growth will be accessible to more investors.
A truly open market strips away a lot of the advantage insiders and old money have enjoyed for a long time, and keeping growth companies in the private market is a way to prolong that privilege.
I'm inclined to agree with you that defending some sort of insider advantage is part of the reason, along with expensive regulations and avoiding manipulative, activist speculative behavior.
Uber was losing between $1B and $5B a quarter when they IPO'd. In the last quarter of 2020, Uber lost close to $1B, and they're still valued at $108B, with no real long term plan for survivability. The way I see it, risks include legislative changes WRT driver status, bad press, self driving cars, a post pandemic world where more people own a car, and less people are in cities. And we're talking about a company that is primarily marketing and software, where the wind can change very quickly, and assets are mostly intangible and untransferable.
car manufacturing is much harder to get into, so having a factory and an almost-complete design is already a huge milestone. Obviously, they'll need to sell _some_ cars, but they could even make money if they were to sell cars at a loss, through carbon credits.
(Yes, for real, I have one)
Would I be willing to take some shine from an EV company willing to give me an approximately $2B (at the time) stake in their company, pay me around $700M of my own costs, and buy vehicles from me at a cost-plus arrangement? Shall I use my pen or yours?
Disclaimer: I’ve been quite short $NKLA for a while, quite profitably; I still am.
I can imagine people buying it just so that they can be different from Tesla.
Nicola wanted to compete in high volume battery manufacturing, which can't be done without a long ramp-up time.
The question is whether Lucid can deliver some unique experience that customers value, and if so, then they too will be forgiven for their own gaps.
I do agree that Supercharger matters a lot more than its "sticker price" and all the drama on various incentives. Turns out it did compensate (somewhat) early adopters for the, uh, rather brutal depreciation not completely anticipated by all, and is a huge enabler for even the not-so-long-ranged variants.
* Supercharger network
* Autopilot on highway
* Interior quality
* More familiar coming from ICE
* The Porsche dealership experience
You can see my lists are a bit lopsided, and I actually prefer the minimal Tesla interior to the luxury Taycan interior.. but I actually think the Taycan is a great car and can't fault someone for considering it.
I just did come back from a 1200 mile road trip that I could not have done very easily in a Taycan. The supercharger network was pretty flawless.
If you’re spending millions on cars you’re probably into “exotics” / “supercars” like higher-end Porches, Ferraris, and up.
I don’t agree with the $24B valuation, I just think that they have at least a chance to sell real cars, unlike Nikola that had a bad strategy from the start.
Trevor Milton’s experience prior to starting Nikola was selling home security systems. Lucid’s leadership team features various Tesla, Audi, Ford, VW, etc. veterans. (See page 9: https://www.lucidmotors.com/files/lucid-investor-deck-februa...)
Lucid has finished building a factory that can produce roughly 30k cars per year, expandable to 400k.
They’ve given rides in their launch vehicle to various auto journalists (https://youtu.be/gqSN2QNgO5k).
Their battery pack technology is a component of the Formula E drivetrain system (https://lucidmotors.com/media-room/atieva-powers-season-6-fo...).
This isn’t a “Nikola rolling a non functional truck down a hill” situation. They have a working product.
The car could suck, the company could be overvalued. But I think hard to compare Nikola to Lucid.
I should also add for comparison, that at the time that Tesla IPOed in 2010, it was a 1.7B market cap company. Only ~2450 Roadsters (their only car at the time) would be sold in total. By November 29, 2010 Tesla had not yet sold 1400 cars (https://www.tesla.com/blog/race-champions-2010-motorsport-go...).
Tesla's Fremont factory was opened in October 2010. In other words, when the company went public on June 29th, 2010 you would have been buying into a car company without a factory.
The first Model S wasn't delivered until June 2012 (https://www.tesla.com/blog/tesla-motors-begin-customer-deliv...).
Not to say that Lucid will or won't ever reach Tesla's heights, but assigning a 12B valuation to the company isn't loony. The SPAC price though is a different story.
There are some fun short videos of Lucid CEO Peter Rawlinson in the workshop from his Tesla days (https://www.youtube.com/watch?v=TrbOLHW8Pec, https://www.youtube.com/watch?v=8YxHp2ot61Y, https://www.youtube.com/watch?v=NGKqPYvtqXE). It's pretty awe inspiring to see where Tesla and the global EV industry as a whole was in 2011 vs today.
Yes, you could argue a 24b valuation is too expensive.
But it basic supply and demand.
You have a limited amount of shares of a very hyped up company in a very hyped up industry.
Of course valuations are going to be expensive lol.
Valuations only matter if you are selling today or tomorrow, not 10-20 years down the line.
CCIV has a NAV of $10. The SPAC trades at $55 now (though down after this news).
This means that whatever price Lucid just agreed to for their valuation, the SPAC holders effectively pay 5.5x that amount for the shares they are getting in Lucid.
So that means that the SPAC investors just effectively invested in Lucid at a 132B valuation?
Is that right?
1. CCIV sold shared at $10 each, raising a bit over $2b
2. Those shares were trading around $55. This price represents a "pre-pop"; the price spiked on rumours CCIV would be merging with Lucid. There's still only $2b of money in the pot though.
3. CCIV is agreeing to value Lucid at $24b. The $2b of cash will buy around 8% of the company.
4. A seperate (PIPE) investment is adding another $2b of cash to the pot, but what terms the PIPE investment is getting and what valuation they're using is unknown.
5. So yes, if you bought a share in CCIV for $55 (or held onto it rather than selling it for $55), and are opting not to redeem, you're saying that you think $10 worth of Lucid at a $24b value is going to be worth over $55 at their "true" valuation which would be....yeah, at least $132b.
See also: https://www.bloomberg.com/opinion/articles/2021-02-19/michae...
That was written a few days ago before the deal had been made when there was speculation of a $12b valuation, and it already seemed a bit wild
So...yes, either I'm missing something basic, or a $55 share value now is basically a gamble on Lucid having a market cap of well over $100b once it's trading.
(Talk about first day pops; with SPACs you don't even have to wait until a deal has been signed to get a several hundred percent pop....)
But with your math then the people buying at $55 bought in at a 90b valuation?
That's still a lot higher than the 24B in this news headline.
This is false.
SUVs need to meet emissions rules. Mileage rules are applied to automakers for the average of what they sell, allowing them to sell high and low mileage models as long as they meet the average. For federal EPA standards, SUVs and sedans both need to meet the same tier 2 requirements, and of course California applies stricter rules to both.
Perhaps you were thinking of the old tier 1 requirements, which had different rules for SUVs? That's two decades out of date. Since 2007, when the transition period ended, the much stricter tier 2 EPA requirements apply equally and make no distinction between SUVs and sedans provided the car weighs less than 8500 pounds. The largest SUV on the market, the Mercedes G Class, weighs 6800 pounds. The average SUV weighs about 5000 pounds, so no, they aren't dropping 5000 pound engines in them.
Or do you mean to say the number of companies going public indicates a bubble?
It's a blank cheque company, common in bubbles, from the first one 300 years ago to today, along with inexplicable valuations (highest in history), a lack of distinction between speculation and investment, ordinary people getting involved, the capitulation of shorts (everyone is long). There are so many signs.
More companies are going public, and there are even some undervalued SPACs.
The key issue is overinflated asset prices, not SPACs.
I don't disagree that we're in a bubble, but I don't understand much about SPACs and wonder what they indicate more precisely.
Most of the time investors are investing based on a rumor, and on top of that they are investing before they have access to the company's fundamentals/disclosures available after companies go public.
Lots of speculative energy is often considered an indication of a market bubble.