Back in June, reports of electric van maker Electric Last Mile Solutions’ (ELMS) bankruptcy filing flew under the market news radar.
Electric Last Mile came public via a SPAC in 2021 amid a wave of other EV startups. At the time, it was pitched to investors as one of the best pure-plays on commercial fleet electrification. Today, it’s headed for the graveyard.
This story is a canary in the coal mine for EV stocks.
While the EV industry is due for huge growth over the next decade, it’s also due for major consolidation. There are simply too many EV makers out there today. And only about 5% of them will make it in the long run. The other 95% will go bankrupt.
Electric Last Mile Solutions may be the first. It most certainly won’t be the last.
And it’s happening outside the realm of bankruptcies, too. Indeed, EV maker Nikola (NKLA) just announced its acquisition of battery maker Romeo Power (RMO). The Great EV Consolidation has begun.
We always thought this consolidation would take several years to play out. But the Fed is accelerating that timeline. Its aggressive rate-hiking path is rapidly increasing the cost of capital in the U.S. economy. And that’s making it largely impossible for a lot of these cash-burning EV startups to raise funds.
The result? Over the next 12 months, we expect to see a lot of these startups file for bankruptcy. And a lot of EV stocks will go to zero.
At the same time, we anticipate this consolidation to help certain strong companies and send those high-quality EV stocks soaring!
So… which ones are you holding in your portfolio right now — the ticking time bombs set to hit zero any day, or the next Teslas (TSLA)?
The Great EV Industry Consolidation
We’re about to witness a great consolidation in the EV space over the next 12 months. Dozens of EV stocks will head to zero. And those that survive will end up soaring as they hog all the industry growth.
This thesis is rooted in historical precedent.
Let’s rewind to the dawn of the gas-powered car.
Bicycle mechanics J. Frank and Charles Duryea of Springfield, Massachusetts designed the first successful American gasoline automobile in 1893. Six years later, in 1899, 30 American manufacturers collectively produced 2,500 of these cars.
And that was just the beginning.
Over the next decade, some 485 companies entered the automobile manufacturing business. All were hoping to strike it rich as the gas-powered car redefined the world of transportation. It was a “gas-powered car boom” — much like the “electric vehicle boom” of today.
We all know what happened next.
This innovation did go on to redefine the world. Today, around 70 million new passenger cars are sold every single year.
But almost none of those 485 companies that popped up back in the early 1900s became a success story.
Less than 50 of them were still in operation by 1930. And just three accounted for 80% of the market.
Though gas-powered cars did take over, 9 of every 10 car companies that emerged didn’t survive to see that success. And less than 1 in 100 turned into auto industry titans.
The EV Revolution will play out similarly.
Startups Will Shut Down
Today, there are hundreds of EV makers in the world, all hoping to strike it rich as EVs redefine transportation.
EVs will do just that over the next twenty years, just as gas-powered cars did in the early 1900s.
And similarly, the EV boom of the 2020s and ‘30s will see just a few top players that differentiate themselves in terms of major value-add, whether it be cost, design, performance, or branding. Those movers will attract all the consumer demand and reap all the rewards of the EV Revolution. And they’ll squeeze out the other 90% of companies in the industry.
So, when I look at the landscape today, I see a graveyard with a few shining stars.
The key to striking gold in this revolution, then, is to find those shining stars. And avoid the companies doomed for what will soon be a crowded EV graveyard.
Four EV Stocks to Sell Now
I’ve long been expecting this industry consolidation. However, I’ve also thought it would happen gradually over the next five years.
The Fed has changed the timeline here. Rates are on a rapid ascent, and the cost of capital is surging. It increasingly appears that industry consolidation will happen very quickly over the next 12 months. In that stretch, I expect dozens of EV stocks to plunge to zero.
Among those I expect to fail are:
- Ayro (AYRO): This tiny company making small, low-speed EVs for niche-use cases looks like all talk and no walk. It has just $44 million in cash on the balance sheet against a trailing 12-month burn rate of $30 million. So, it needs some big commercial wins soon to stave off bankruptcy. We doubt that will happen.
- Arcimoto (FUV): I love the idea of tiny, 3-wheeled EVs. But I don’t think this is the company that’s going to execute that vision. And if it does, it will require so much more capital that shareholders will get diluted to near-zero. Arcimoto has just $5 million in cash on the balance sheet, and cash burn was $15 million last quarter. Ouch!
- Workhorse (WKHS): Ever since this electric van maker lost the USPS contract — after first losing a UPS (UPS) contract — we’ve been convinced that the tech platform here is pretty poor. Bad technology just won’t cut it in the hypercompetitive electric van market. That’s especially true with just $167 million in cash against a quarterly burn rate of $35 million. Not a great situation.
- Lordstown Motors (RIDE): We were never convinced that this company – lacking talent and resources – would compete pound-for-pound making electric trucks with Tesla (market leader), Rivian (RIVN) (backed by Amazon), and Ford (F) (the legacy truck leader). Now the pressure is on. The company has just $300 million in cash on the balance sheet with a quarterly burn rate of $80 million. Bankruptcy looks very likely here.
The Final Word on EV Stocks
A great consolidation is coming to the EV industry. That’s bad news for low-quality EV stocks. They’re doomed to fall to zero.
— Luke Lango
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Source: Investor Place