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Cash is king for EV makers as soaring battery prices drive up vehicle production costs

Production of electric Rivian R1T pickups on April 11, 2022 at the business’s plant in Normal, Ill.

Michael Wayland / CNBC

In the transition from gas-powered vehicles to electric, the fuel every automaker is after nowadays is cold income.

Established automakers and startups alike are rolling out new battery-powered models in order to meet growing demand. Ramping up production of a fresh model had been a fraught and expensive process, but rising material costs and tricky regulations for federal incentives are squeezing coffers even more.

Prices of the recycleables found in many electric-vehicle batteries lithium, nickel and cobalt have soared during the last 2 yrs as demand has skyrocketed, also it may be many years before miners can easily meaningfully increase supply.

Complicating the problem further, new U.S. rules governing EV buyer incentives will demand automakers to source more of these materials in THE UNITED STATES over time should they want their vehicles to qualify.

The effect: new cost pressures for that which was already a pricey process.

Automakers routinely spend vast sums of dollars designing and installing tooling to create new high-volume vehicles before an individual new car is shipped. Almost all global automakers now maintain hefty cash reserves of $20 billion or even more. Those reserves exist to make sure that the firms can continue focus on their next new models if so when a recession (or perhaps a pandemic) requires a bite out of these profits for some quarters.

All that time and money could be a risky bet: If the brand new model doesn’t resonate with customers, or if manufacturing problems delay its introduction or compromise quality, the automaker may not make enough to cover what it spent.

For newer automakers, the financial risks to designing a fresh electric vehicle could be existential.

Take Tesla. Once the automaker began preparations to launch its Model 3, CEO Elon Musk and his team planned an extremely automated production line for the Model 3, with robots and specialized machines that reportedly cost more than a billion dollars. However, many of this automation didn’t are expected, and Tesla moved some final-assembly tasks to a tent outside its factory.

Tesla learned lots of expensive lessons along the way. Musk said later called the knowledge of launching the Model 3 “production hell” and said it nearly brought Tesla to the brink of bankruptcy.

As newer EV startups crank up production, more investors are learning that going for a car from design to production is capital-intensive. And in today’s environment, where deflated stock prices and rising interest levels have managed to get harder to improve money than it had been just a couple of years ago, EV startups’ cash balances are receiving close attention from Wall Street.

Here’s where probably the most prominent American EV startups of the previous few years stand with regards to cash readily available:

Rivian

Production of electric Rivian R1T pickups on April 11, 2022 at the business’s plant in Normal, Ill.

Michael Wayland / CNBC

Rivian is undoubtedly the best-positioned of the brand new EV startups, with over $15 billion readily available by the finish of June. That needs to be enough to invest in the business’s operations and expansion through the planned launch of its smaller “R2” vehicle platform in 2025, CFO Claire McDonough said through the company’s earnings ask Aug. 11.

Rivian has struggled to crank up production of its R1-series pickup and SUV amid supply chain snags and early manufacturing challenges. The business burned about $1.5 billion in the next quarter, but it addittionally said it plans to lessen its near-term capital expenditures to about $2 billion this season from $2.5 billion in its earlier intend to ensure it could meet its longer-term goals.

A minumum of one analyst thinks Rivian will have to raise cash prior to 2025: In an email following Rivian’s earnings report, Morgan Stanley analyst Adam Jonas said that his bank’s model assumes Rivian will raise $3 billion with a secondary stock offering prior to the end of next year and another $3 billion via additional raises in 2024 and 2025.

Jonas currently comes with an “overweight” rating on Rivian’s stock, with a $60 price target. Rivian ended trading Friday at roughly $32 per share.

Lucid

People try Dream Edition P and Dream Edition R electric vehicles at the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.

Caitlin O’Hara | Reuters

Luxury EV maker Lucid Group does not have quite just as much profit reserve as Rivian, but it isn’t badly positioned. It ended the next quarter with $4.6 billion in cash, down from $5.4 billion by the end of March. That’s enough to last “well into 2023,” CFO Sherry House said earlier this month.

Like Rivian, Lucid has struggled to crank up production since launching its Air luxury sedan last fall. It’s planning big capital expenditures to expand its Arizona factory and create a second plant in Saudi Arabia. But unlike Rivian, Lucid includes a deep-pocketed patron Saudi Arabia’s public wealth fund, which owns about 61% of the California-based EV maker and would probably step in to greatly help if the business runs lacking cash.

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Generally, Wall Street analysts were unconcerned about Lucid’s second-quarter cash burn. Bank of America’s John Murphy wrote that Lucid still has “runway into 2023, especially taking into consideration the company’s recently secured revolver [$1 billion credit line] and incremental funding from various entities in Saudi Arabia earlier this season.”

Murphy includes a “buy” rating on Lucid’s stock and a cost target of $30. He’s compared the startup’s potential future profitability compared to that of luxury sports-car maker Ferrari. Lucid currently trades for approximately $16 per share.

Fisker

People gather and take pictures following the Fisker Ocean all-electric SUV was revealed at Manhattan Beach Pier on November 16, 2021 in Manhattan Beach, California.

Mario Tama | Getty Images

Unlike Rivian and Lucid, Fisker isn’t likely to build its factory to create its electric vehicles. Instead, the business founded by former Aston Martin designer Henrik Fisker use contract manufacturers global auto-industry supplier Magna International and Taiwan’s Foxconn to create its cars.

That represents something of a cash tradeoff: Fisker won’t need to spend nearly just as much money in advance to obtain its upcoming Ocean SUV into production, nonetheless it will likely quit some profit to cover the manufacturers down the road.

Production of the Ocean is scheduled to begin with in November at an Austrian factory owned by Magna. Fisker could have considerable expenses in the interim money for prototypes and final engineering, and also payments to Magna but with $852 million readily available by the end of June, it will haven’t any trouble covering those costs.

RBC analyst Joseph Spak said following Fisker’s second-quarter report that the business will probably need more money, despite its contract-manufacturing model what he estimated to be about $1.25 billion over “the coming years.”

Spak comes with an “outperform” rating on Fisker’s stock and a cost target of $13. The stock closed Friday at $9 per share.

Nikola

Nikola Motor Company

Source: Nikola Motor Company

Nikola was among the first EV makers to go public with a merger with a special-purpose acquisition company, or SPAC. The business has begun shipping its battery-electric Tre semitruck in small numbers, and plans to crank up production and put in a long-range hydrogen fuel-cell version of the Tre in 2023.

But by at this time, it probably does not have the cash to obtain there. The business has already established a tougher time raising funds, following allegations from the short-seller, a stock price plunge and the ouster of its outspoken founder Trevor Milton, who’s now facing federal fraud charges for statements designed to investors.

Nikola had $529 million readily available by the finish of June, plus another $312 million available via an equity line from Tumim Stone Capital. That’s enough, CFO Kim Brady said during Nikola’s second-quarter earnings call, to invest in operations for another 12 months but additional money will undoubtedly be needed in a short time.

“Given our target of keeping 12 months of liquidity readily available by the end of every quarter, we shall continue steadily to seek the proper opportunities to replenish our liquidity on a continuing basis while attempting to minimize dilution to your shareholders,” Brady said. “We have been carefully considering how exactly we could spend less without compromising our critical programs and reduce cash requirements for 2023.”

Deutsche Bank analyst Emmanuel Rosner estimates Nikola will have to raise between $550 million and $650 million prior to the end of the entire year, and more down the road. He’s got a “hold” rating on Nikola with a cost target of $8. The stock trades for $6 by Friday’s close.

Lordstown

Lordstown Motors gave rides in prototypes of its upcoming electric Endurance pickup on June 21, 2021 within its “Lordstown Week” event.

Michael Wayland / CNBC

Lordstown Motors is in possibly the most precarious position of the lot, with just $236 million readily available as of the finish of June.

Like Nikola, Lordstown saw its stock price collapse following its founder was forced out carrying out a short-seller’s allegations of fraud. The business shifted from a factory model to a contract-manufacturing arrangement like Fisker’s, also it completed a deal in-may to sell its Ohio factory, a former General Motors plant, to Foxconn for a complete around $258 million.

Foxconn plans to utilize the factory to manufacture EVs for others, including Lordstown’s Endurance pickup and the next small Fisker EV called the Pear.

Regardless of the considerable challenges ahead for Lordstown, Deutsche Bank’s Rosner still includes a “hold” rating on the stock. But he’s not sanguine. He thinks the business will have to raise $50 million to $75 million to invest in operations through the finish of the year, despite its decision to limit the initial production batch of the Endurance to just 500 units.

“Moreover, to perform the production of the first batch, management will need to raise bigger capital in 2023,” Rosner wrote after Lordstown’s second-quarter earnings report. And given the business’s difficulties up to now, that wont be easy.

“Lordstown would need to demonstrate considerable traction and positive reception for the Endurance using its initial customers to be able to raise capital,” he wrote.

Rosner rates Lordstown’s stock a “hold” with a cost target of $2. The stock closed Friday at $2.06.

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