What does it take to build a successful EV Start-Up?

The business that manufactured the original Tesla TSLA +2.84% Roadster's chassis has reinvented itself as an electric vehicle start-up. In contrast to other EV startups now on the market, this one is well received.

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This previous week, L Catterton Asia Acquisition LCAA +0.10% (ticker: LCAA), a special-purpose acquisition business, revealed it was merging with Lotus Technology in a deal that valued the automaker at roughly $5.4 billion.

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The transaction is anticipated to be completed in the second half of 2023. At that point, "LOT" will replace "LCAA" as the stock symbol.

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The largest SPAC merger disclosed since September 2021 is the $5.4 billion deal. With escalating interest rates, poor stock performance from SPAC-related companies, and risk-taking becoming out of style in the markets, the SPAC market has been stuck in a rut for the majority of the past year.

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Additionally, there isn't much anticipation for EV stocks connected to SPAC. Shares of Faraday Future Intelligent Electric FFIE -8.63% (FFIE), Nikola (NKLA), Lucid Group LCID +1.94% (LCID), Lordstown Motor RIDE -3.40% (RIDE), Fisker (FSR), Canoo (GOEV), Arrival (ARVL), Nikola (NKLA), and Polestar Automotive (PSNY) previously had a combined value of $190 billion.Today, they are reduced to less than $40 billion, an 80% decrease. Including Rivian Automotive (RIVN), which generated capital through a conventional initial public offering rather than a SPAC merger, brings the total to $305 billion, a decrease of nearly 81% from $57 billion.

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A cumulative $110 billion is the market value of General Motors (GM) and Ford Motor (F).

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Lucid, Rivian, Polestar, Fisker, and, of course, Lotus are the only EV start-ups now valued at more than $2 billion. Roughly 95% of the value of all EV start-up stocks is represented by those five companies.

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EV Startup Market Capitalizations

The five have several traits in common. They have enough cash on hand to cover at least a few quarters. Now, everyone is selling automobiles. Additionally, they have the ability to increase production. Market need for company planning has decreased. It wants to see automobiles on the road and scalable production.

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Chinese automakers Geely Holding and NIO are backing Lotus, which nearly 15 years ago donated its Elise chassis for the first Tesla (TSLA) Roadster, in addition to money obtained through the SPAC merger (NIO). After the SPAC merger, that duo will still hold roughly 90% of the corporation.

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Geely has production capabilities that Lotus may exploit to avoid having to invest billions of dollars in a car plant. Additionally, in 2023, the Lotus Eletre will be available in China and Europe. The price of the electric SUV exceeds $100,000.

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In 2023, Lotus expects to ship roughly 22,000 units.

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Both Polestar and Fisker are in comparable circumstances. The Ocean SUV, which is shipping in 2023, is being built by Magna International (MGA). Additionally, Polestar constructs its electric vehicles using Volvo, a company that is also owned by Geely.

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In 2023, Fisker is anticipated by Wall Street to supply around 32,000 units. About 80,000 units are anticipated to be delivered by Polestar.

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Fisker has more than $800 million in cash on hand at the conclusion of the third quarter. At the end, Polestar had nearly $1 billion in its books. Both sums are sufficient to keep the businesses operating for a few more quarters.

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Similar to Fisker and Polestar, Rivian and Lucid have vehicles on the road and are seeing increased sales. In 2023, Lucid and Rivian are anticipated to ship a combined total of about 20,000 automobiles.

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Contrary to Fisker and Polestar, Rivian and Lucid do not use contract manufacturing. Both companies have their own factories where cars are produced in large quantities. Rivian's initial plant is in Illinois, whereas Lucid's is in Arizona.

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Additionally, Rivian and Lucid are wealthier than other EV start-ups. In the third quarter, Lucid had about $4 billion in assets and Rivian had over $14 billion. Moreover, Lucid has a powerful supporter. Majority of its equity is owned by Saudi investment funds.

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Although it's still too soon to say which of the EV start-ups will succeed in the long run, the market has placed some wagers on who stands a chance. Cash, space, and the number of cars on the road are the admittance costs.

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L Catterton raised $286.5 million when it went public in March 2021. Ever since the announcement of the partnership with Lotus on January 31, shares have fluctuated at about $10.30. Investors apparently believe the deal has value because that amount is higher than the value of the cash held in the SPAC's trust.

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According to SPAC Insider, 2021 was a record year for SPACs, with 613 of them coming out publicly and raising a total of $162.5 billion. In 2022, just 86 SPAC-merged firms went public, and so far in 2023, there have only been two.