Many electric car startups dream of being the next Tesla, but not all will survive

In 2021, Tesla surpassed the market valuations of Toyota ($240 billion) and Volkswagen ($149 billion) by reaching a market value of $1 trillion.

This achievement prompted investors to bet on electric car startups . However, some analysts believe that these startups are overrated and that many of them are in danger of disappearing soon.

Companies such as Fisker , Lucid , and Rivian garnered worldwide media attention and reached sky-high stock market valuations before experiencing a crash. According to the Washington Post, these startups may now face challenges to survive.

These brands have barely produced cars for the past few years and some of them have not even produced a single unit for customers yet, as is the case with Fisker. Although Henrik Fisker had previously tried to get into car manufacturing (restarting the BMW 6 Series), his company went public at the end of 2020 without selling a single car and without generating any revenue, but was valued at 8,000 million. dollars.

Over the summer that followed, Lucid went public with a $91 billion valuation, while Rivian, the best-funded startup to date without selling a single car, followed a few months later with a valuation of $91 billion. $121 billion. Although both companies started building cars, they both performed below their expectations.

Rise like foam then crumble

None of the companies mentioned have managed to maintain their initial valuations and all have seen their market value depreciate by 75% or more since Wednesday. During this week, they have all suffered heavy losses and are suffering from lack of funds.

Take the example of Fisker , which posted losses of $120 million in the first three months of 2023 and used $84 million of its funds. Similarly, Lucid reported losses of over $779 million in the first three months of 2023, which is a significant increase from its losses of $81 million in the first quarter of 2021.

In the first three months of this year, Rivian suffered losses of $1.3 billion, but the company has cash and cash equivalents of about $11.2 billion, making it makes it more liquid than its competitors.

However, it is important to note that there is potential for a bubble effect due to Tesla's success. Investing in an automotive start-up is more risky than in an app-developing start-up because the automotive industry is slower and more sensitive to economic fluctuations.

This is due to the longer lead times involved in automotive production and the industry's vulnerability to general economic conditions.

Rising interest rates have complicated access to investments and the supply and microchip crisis has also had a negative impact. In addition, incumbent manufacturers have invaded the electric car market by taking advantage of their economies of scale.

Meanwhile, Tesla announced a profit of more than $2.5 billion in April, down 24% from the same period a year earlier, which caught the attention of investors. Nevertheless, Wall Street is beginning to lose patience with brands that produce very few cars and when they do, fail to meet their targets. However, it is important to remember that Tesla took two decades to turn a profit.

According to the analysts interviewed, there is still potential for Rivian and Lucid to stand out, especially for Rivian, although this involves costs. On the other hand, Fisker is not even mentioned.