Why EV startups need to brake before merging with a SPAC – Marketingwithanoy

The blank check boom that made many electric vehicle manufacturers’ dream of going public may be coming to an end.

One such company, Faraday Future, is even in danger of being delisted, according to a filing last week with the US Securities and Exchange Commission.

Faraday Future, Lordstown Motors, Lucid Motors, Nikola and Canoo — nearly all EV makers that have taken a shortcut to an IPO by merging with a publicly traded shell company — have come under scrutiny by the SEC, raising their once sky-high valuations plummeted.

Faraday provides a cautionary tale. The beleaguered seven-year-old EV company, which has yet to launch a vehicle, went public in July last year by merging with a Special Purpose Acquisition Company (SPAC).

Just months later, however, a report by activist shortseller Hindenburg Research led to an internal investigation that resulted in pay cuts for the two top executives and the firing of others. Hindenburg, a New York-based investment firm, has sounded alarm bells for several EV makers who have gone the SPAC route.

Chief among the investigation’s findings was that Faraday misled investors into saying it had received more than 14,000 deposits for its highly anticipated FF 91 vehicle. In fact, many of those reservations were actually unpaid, passive indicators of interest.

If you don’t live up to your projections, you really get hammered. That’s when investors start filing lawsuits. John Loehr, General Manager of Automotive and Industrial, AlixPartners

Last week, after the SEC subpoenaed several executives suspected of making other false claims, Faraday said the investigation could delay the filing of its 2021 annual report. Nasdaq said failure to follow those guidelines puts the company at risk of being delisted.

When the boom breaks

Over the past few years, a bevy of new EV companies — including startups that have yet to monetize or launch a commercial product — have merged with SPACs to raise money to rethink transportation and fulfill their vision of an electrified future. But analysts say these once-promising companies could soon be sold for parts — or folded altogether.

“Automotive manufacturing is not a business friendly to newbies,” said John Loehr, general manager in the automotive and industrial practice at consulting firm AlixPartners. “You need significant production volumes to make money.”

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