Electric Vehicles – Last man Standing

Lucid likely to be the survivor.

• The combination of economic pressure on consumers and brutal competition from China makes it very clear that the EV shakeout will continue, and I think that Lucid will be the last man standing but only as a private company.
• A series of factors including cost, charging and immaturity is causing demand for EVs to be weaker than expected and with the Chinese having figured out to make pretty good quality vehicles, the scene is set for a continued shakeout amongst the Western players.
• Fisker is the latest company to run into trouble as its shares have been suspended from the NYSE for spending more than 30 days trading below $1.
• At the same time, the company announced that it had lost a potential deal with a large car maker (widely thought to be Nissan) which was a closing condition on a $150m convertible note.
• Fisker is a good example of the problem that besets much of the EV start-up industry outside of China.
• EV makers came to market via SPAC on a wave of optimism and hype and unwisely assumed that capital would remain as cheap as it was in 2021 and that the billions of dollars that they needed to raise to get to cash flow break-even would be a breeze.
• What a difference just one year made as the interest rate rises to combat the money printing-induced inflation made capital much more expensive and destroyed the positive sentiment.
• Furthermore, the rise in the price of electricity combined with the fall in the oil price has greatly undermined the economic proposition of going electric for many consumers.
• Combining this with the fact that EV owners are effectively paying a premium to be beta testers of an immature proposition is not ideal in a difficult economic climate.
• The Chinese have worked out how to build good quality EVs at cheap prices (subsidised?) and are aggressively attacking export markets outside of the USA but are making plans there too.
• The net result is lower growth and weaker cash flow from lower prices which, when one is capital-constrained, is a death sentence.
• Consequently, it looks to me like Fisker will go out of business shortly followed by Faraday Future and even Rivian’s future is questionable.
• This leaves Lucid Motors which has the best product in my opinion as well as the most committed backers.
• This is because Lucid has the best mechanical EV technology available and makes very good use of this in its products which is evidenced by the constant good reviews that its products receive.
• Lucid is majority-owned by the Public Investment Fund (PIF) of Saudi Arabia and I suspect that at some point, PIF will make an offer for the shares that it does not already own and take the company private.
• Although Lucid has the same problems as its peers, its strong position in EV technology means that PIF views Lucid as strategic and is very likely to continue backing the company.
• The real question is at what point does PIF get tired of seeing Lucid’s shares get hammered in the public market and move to remove it from public ownership.
• This is why taking a position in Lucid is a tricky proposition and not one that I am inclined to undertake as valuation is unlikely to be a factor in the return that the shares generate.
• I still think that the best way to invest in electrical vehicles (and to some degree AI) is nuclear power as it is the only carbon-free baseload alternative to coal, oil and natural gas.
• Cheap, green electricity is what both of these two trends need in ever increasing quantity.