Featured Commentary

By Therese Poletti

When Henry Ford was reorganizing his Detroit Automobile Company into what would become the juggernaut of U.S. auto manufacturing, hundreds of other young auto makers were also starting up.

One of them, the National Motor Vehicle Car Manufacturing Co, started out in Indianapolis, which boasted six automakers in 1906. National Motor even competed in and won the 1912 Indy 500. Sales boomed and it expanded production, but after a merger with Associated Motor Industries in 1922, the company ended up in receivership in 1924. Like hundreds of other early car companies, none of those six Indianapolis players survived.

Investors eyeing the electric vehicle space today may have a sense of déjà vu. The huge number of companies, large and small, currently working on electric vehicles or their components is reminiscent of the turn of the 20th century, when companies like National and others experimented with body forms and engine types, from steam-powered to internal combustion to early versions of electric vehicles.

By the 1929 stock market crash, there were only about 40 auto makers left, and that number eventually shrunk to where the top companies in the U.S. are referred to as the “Big Three.” Similar shakeouts occurred globally, with Big Threes emerging in other countries, like Japan and Germany.

One major difference between then and now, said Brett Smith, director of technology research at the Center for Automotive Research, or CAR, is that 100 years ago, “everybody was starting from scratch—no one had an advantage,” while today, traditional auto makers already know how to build cars and create huge assembly lines.

The question for investors then is which companies will become the big 3 of EVs?

The company with the biggest advantage in electric vehicles today is Tesla Inc. /zigman2/quotes/203558040/composite TSLA +11.00% , which has finally proved to the world that EVs are the future. As rival startups and legacy automakers seek to emulate its success, investors must ponder which EV companies will succeed and which will disappear.

Globally, there are hundreds of startups working on some aspect of electric vehicles, from creating the car, to charging station infrastructure, improving the manufacturing process, developing new battery technologies and working on fuel cells. CB Insights of New York said it is tracking more than 700 startups around the world that are active in the space.

“There seems to be a new one every day,” said Smith of CAR.

Since February, the shares of many better known startups have lost much of their value because of serious issues, including regulatory inquiries or investigations, class action lawsuits, management tumult and abrupt executive departures. Piling onto these woes — which mainly stem from overpromising and under-delivering — is a semiconductor shortage hampering efforts to get first products out the door.

Several publicly traded EV makers are still technically startup companies, with no revenue or much operational history. But because of the SPAC boom, and the de-SPAC process, they are now publicly traded companies, leaving investors making bets like venture capitalists on the next Tesla.

“What they are doing is very hard,” said Smith. “Over the next 5 years, there is going to be some remarkable growth for some of these companies. But there will be some that don’t grow and struggle. There is more to be optimistic about with these companies than there was five years ago, because the tech is getting closer to broader adoption. The problem is that the traditional car companies have been getting into it too now and competition is tougher.”

As a result of some of those issues, no revenue is expected for the rest of the year at Nikola Corp. /zigman2/quotes/208704275/composite NKLA +9.49% , Lordstown Motors Corp. /zigman2/quotes/211334938/composite RIDE +7.50% , and Fisker Inc. /zigman2/quotes/209924856/composite FSR +14.96% , with all three companies predicting their first vehicles sometime in 2022, if their current forecasts can be believed.

“I know it sounds like a broken record and it’s boring, but I think in this case, the broken record is quite good to keep on saying that we are on time on the Ocean program and we are on budget,” Fisker co-founder, Chairman and Chief Executive Henrik Fisker told analysts in the company’s earnings call last month.

Fisker said the company will start production on Nov. 17, 2022, which actually looks good compared with other startups. Morgan Stanley analyst Adam Jonas said in a note that he believes Fisker “may be one of the only EV startups to actually launch on time and ramp efficaciously in late 2022.”

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