Automotive tech – Signs in the road.

EV SPACs break down and Geely gets it right.

EVs: One down, many more to go

• EV SPAC Electric Last Mile Solutions (ELMC) has filed for Chapter 7 bankruptcy indicating that there is no chance of a recovery in what is likely to be the first of many.
• Chapter 7 is different from Chapter 11 which is a process by which a company seeks protection from its creditors to re-organise and recover.
• Chapter 7, on the other hand, requires the liquidation of assets and clearly signals the end of the road.
• ELMC is one of the companies that in a proper market would never have been funded and whose ignominious collapse will help hammer the shares of the few good companies.
• The problem is that thanks to the Fed printing trillions of dollars, the market was awash with liquidity and when there is too much liquidity investors do stupid things.
• This is precisely what happened in 1999 and 2000 when there was too much paper chasing too few internet stocks resulting in the formation of the Internet bubble.
• Thankfully, the EV SPAC bubble is popping very quickly, and I expect to see a flurry of chapter 7s and forced consolidation.
• However, there are some good companies in amongst the wreckage which should be looked at very carefully.
• One of these is Lucid, which has some of the best EV technology available and is selling a vehicle that everyone loves.
• However, even after falling 79% from its highs, it is still much too expensive, but at some point, it will become too cheap which is why it is worth keeping an eye on.
• The other is Ouster which has real Lidar revenues today, trades on 1.8x 2022 EV / Sales and has enough liquidity to see it through to profitability.
• I am steadily adding to my position in Ouster as it continues to crash with the rest of the sector.

Geely goes Android

• Geely, the Chinese carmaker is buying Meizu from Alibaba which I suspect Geely will now use in its cars which I think is a much better solution than using automotive-grade Linux (AGL).
• Geely is acquiring a 79% stake in Meizu, the Android handset maker in which Alibaba invested $590m in 2015 (see here).
• Meizu is unusual for a Chinese handset maker in that it created its own version of Android called Yun OS and the original idea was that Alibaba’s ecosystem would run on top of it.
• However, this never really amounted to very much and given Alibaba’s censure and its return to basics, I am not surprised that it is selling.
• At a high level, this acquisition appears strange as vehicle makers have no business making smartphones, but I think that this is about Geely picking up Yun OS and putting it into its vehicles.
• As vehicles become more digitised, automakers need to have a seat at the table when it comes to the delivery of digital vehicle services to vehicle occupants.
• One way to achieve that is to control the software that runs in the vehicle and in the infotainment system.
• Most vehicle makers have decided to abandon Android and switch to automotive-grade Linux (AGL) which I think is a massive mistake.
• OEMs have abandoned Android because they fear Google, but the Chinese have demonstrated that you can use Android and still safely boot Google from your device.
• Hence, I see no danger in using Android in the vehicle (as long as Google services are side lined) which brings the benefit of consistency from one vehicle maker to another and makes life much easier for developers.
• Going to AGL removes all of these benefits and I think increases the risk that OEMs fail to have any presence in vehicle digital services which will have brutal consequences in the future.
• This is why I think Geely has the right idea as it will control the platform in its car and also enable the multitude of developers who write Android apps to put their services in its vehicles with minimal effort.
• This could be another area where China comes out ahead.