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Sept. 20, 2021, 7:58 a.m. EDT

If there were a ‘Big Three’ of electric vehicle makers, who would join Tesla?

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By Therese Poletti

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These companies, plus Faraday Future Electric Inc., /zigman2/quotes/219649891/composite FFIE +0.49% Canoo Inc. /zigman2/quotes/211334934/composite GOEV -7.14% , Lucid Group /zigman2/quotes/221104327/composite LCID -3.78% and the soon to go public Rivian , are among the top funded EV makers in the U.S. But while many have received billions from investors through private funding rounds or SPAC deals –electric truck-maker Rivian has raised $10.5 billion — some are now encountering credibility problems.

For example, Lordstown — an electric truck-maker which took over a former GM factory in an area of Ohio referred to as Voltage Valley — disclosed in July that its merger deal was being investigated by the Securities and Exchange Commission and the Justice Department, for a variety of matters , including information provided to investors about its pre-orders. Lordstown added a “going concern” warning to regulatory filings and clarified that the orders it had were not binding.

“To do what Tesla did, build a car company from the ground up and all the way through to distribution, that took a phenomenal amount of money,” Smith said. Tesla is now almost 18 years old. After raising $226 million in its 2010 IPO, it has gone back to the capital markets frequently, raising more than $20 billion through secondary stock sales and debt offerings.

Workhorse Group Inc. /zigman2/quotes/207314632/composite WKHS -0.85% , which makes electric “last mile” delivery vans and utility vehicles, also was reported to be the target of an SEC investigation , and Trevor Milton, the founder of Nikola Corp. /zigman2/quotes/208704275/composite NKLA -0.10% , has been charged with securities fraud in federal court in the Southern District of New York, allegedly for overinflating the developments at the electric truck maker. Milton has stated that he is innocent.

Since EV makers need the same hefty capital investment as other auto makers, investors might be more inclined to favor the established companies making a foray into electrification. Nearly every major auto maker around the globe has some sort of effort today to develop electric vehicles, but in the U.S., Ford Motor appears to be the furthest along, with plans to offer dozens of electrified vehicles, including a truck, sometime in 2022.

Don’t miss: Chasing Tesla: Here are the current electric vehicle plans of every major car maker

If investors are looking to bet on one of Tesla’s upcoming rivals, the best course may be to pick one of the companies that is actually close to launching a car, like Fisker or Lucid, and then diversify bets on some traditional auto makers. Another option is to look for suppliers, instead of the much more capital-intensive car makers.

Assad Hussain, mobility analyst at PitchBook, which tracks all aspects of the public and private equity markets, said professional investors are looking beyond the companies making cars to those that are supplying the automakers.

“A lot of the smart VC money is going into the picks and shovels, not necessarily trying to trying to find the next Tesla,” Hussain said, making an analogy with the pioneers who got rich during the California gold rush of 1849 by providing the supplies, instead of joining the hordes panning for gold in the Sierra foothills.

One example is a company called Redwood Materials, which is working on recycling lithium ion batteries in both devices and EVs. Redwood was co-founded by JB Straubel, a Tesla co-founder and its CTO for 15 years. Redwood recently raised $700 million from a group of investors, including T. Rowe Price, Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -1.53% , and others.

Recurrent, based in Seattle, was founded just last year and is offering third-party reports on used EV batteries, to help car buyers determine the life of the vehicle. It raised $3.5 million in seed funding late last year.

“Maybe the smart thing to do is not look for the next Tesla, but to go out and find an enabling technology,” said Hussain.

The past century shows that periods of innovation in automobiles eventually settled into a triumvirate of dominant companies.

Whether that will happen again is anyone’s guess, but the strategies here should help find the safer bets, such as the companies the farthest along, the established auto makers, or look to the most interesting suppliers of this hot arena.

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Volume: 4.19M
Nov. 30, 2021 4:00p
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US : U.S.: Nasdaq
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Nov. 30, 2021 4:00p
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N/A
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US : U.S.: Nasdaq
$ 52.98
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Nov. 30, 2021 4:00p
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$90.65 billion
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/zigman2/quotes/207314632/composite
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$ 5.84
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/zigman2/quotes/208704275/composite
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$ 10.22
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$4.16 billion
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$211.11
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,507.07
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Volume: 3.99M
Nov. 30, 2021 4:00p
P/E Ratio
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Dividend Yield
N/A
Market Cap
$1806.24 billion
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$297,430
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Therese Poletti chronicles the machinations of the technology industry for MarketWatch in the Tech Tales column. Before joining MarketWatch, Poletti covered...

Therese Poletti chronicles the machinations of the technology industry for MarketWatch in the Tech Tales column. Before joining MarketWatch, Poletti covered some of the biggest companies in Silicon Valley for the San Jose Mercury News. Previously, she spent over a decade at Reuters, covering a range of beats, from spot news and Wall Street to biotech and technology. Poletti was also the lead reporter on teams at the Mercury News that won two Society of American Business Editors and Writers awards for breaking news and two Society of Professional Journalist awards. She was also a finalist for the Gerald Loeb Awards in the deadline writing category. Poletti is also the author of "Art Deco San Francisco: The Architecture of Timothy Pflueger," published by Princeton Architectural Press.

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