© Reuters. Steve Burns, Chief Executive of Lordstown Motors Corp., poses with a prototype of the endurance pickup from the electric vehicle start-up in Lordstown
By Ben Klayman, Joshua Franklin and Paul Lienert
(Reuters) – manufacturer of electric commercial vehicles Nikola Corp. (O 🙂 of Phoenix, Arizona, tried unsuccessfully to raise $ 1 billion in private markets and only turned to a merger with a so-called blank check company to go public to raise funds , his CFO said.
Nikola quickly raised a $ 250 million commitment from lead investor CNH International (MI 🙂 last summer, but market concerns about over-valuation for some companies led the startup to consider an IPO before considering VectoIQ acquisition Corp turned to Kim Brady (NYSE) in late November 🙂 Reuters said this week.
A deal with the Special Purpose Acquisition Company (SPAC) became a reality when it was able to arrange an additional $ 525 million from institutional investors like Fidelity Management & Research Company upon completion of the $ 240 million acquisition, so that Nikola could reach his donation goal, he said in a telephone interview.
Nikola SPAC's merger was a catalyst for the industry as electric car makers and other auto technology startups, after interviews with 20 industry representatives, seek to raise the funds necessary for their vehicles to survive and develop, despite global demand for electric vehicles slowly growing.
"When we started our Series D (fundraising round), we didn't think we were going to be a public company a year later, but based on the market conditions we were rotating," Brady said. "It worked out perfectly for us. We ended up in exactly the same place."
Previously, Nikola had planned an IPO in late 2021 or even 2022, and without the SPAC deal, it would likely still be private and slowed down product development plans to save money in the face of the freeze in capital markets caused by the coronavirus pandemic, Brady said.
Nikola's success – stocks have risen more than 320% since the deal was announced – has encouraged other startups to consider a SPAC merger to raise much-needed cash as public market investors pursue Tesla-like returns. However, the trend is also worrying industry executives that some of these businesses may fail, dwarfing the sector.
A SPAC is a shell company that raises money through an IPO to buy an operating company, usually within two years.
Spaces to rescue
"Some of these companies have had problems for many years and now they see SPACs as some kind of savior," said Nikola Brady.
EV startups Fisker Inc and Lordstown Motors Corp had similar problems raising money privately before cutting back SPAC deals to go public.
Lordstown reached out to a SPAC when efforts to raise $ 500 million privately stalled as COVID-19 spread across America, said Steve Burns, chief executive of Lordstown.
"We thought we were going to do the private (funding) and then the more conventional IPO, but COVID kind of messed that up," Burns told Reuters. "It was of super-high interest to everyone who hit the pause button."
Without his SPAC, Burns would have had to postpone plans, including rolling out the electric endurance pickup next year at Lordstown's Ohio facility, and then rolling it out with other trucks and SUVs.
Henrik Fisker, CEO of Fisker, said private fundraising in the capital-intensive automotive sector is not enough.
"When you're talking about billions of dollars, you end up going to the public markets," he told Reuters last month.
Other EV companies targeted by SPACs include Electric Delivery Van Startup Arrival Arrival, Lucid Motors, ChargePoint Inc EV charging system, Bollinger Motors, Canoo, Karma Automotive, and VIA Motors International Inc., according to dealmakers and industry executives.
Lucid, who raised $ 1 billion from Saudi Arabia's public investment fund in 2018 and plans to start production of its first electric vehicle in early 2021, intends to go public at some point, and to do so with a SPAC is an option, CEO Peter Rawlinson told Reuters.
Leo Lin, Karma's acting chief financial officer, said the company's plan has always been to go public and SPACs are an option as it plans to raise at least $ 300 million. Pasquale Romano, CEO of ChargePoint, said the company plans to eventually go public, but fundraising leaves time to weigh all options.
VIA did not respond to a request for comment and the others declined to comment.
Another important factor is that private investors get quicker access to their investments as they can cash out quickly with a SPAC, in some cases even two or three months later, industry officials said.
Investors are also driving the momentum in the EV market, industry officials said. While electric vehicles still make up a small percentage of auto sales worldwide, many are betting that will change as they enviously watch the stock of the electric vehicle industry leader, Tesla (O :), rise more than 500% over the past year is.
"People are looking for the next Tesla," said Tony Posawatz, a former GM executive who led development of the Chevrolet Volt plug-in hybrid car and ran the former Fisker Automotive. He is now a clear board member.
EV companies, including Chinese newcomers Nio Inc (N 🙂 and Li Auto Inc. (O 🙂 are so popular with investors that some analysts are pushing US automaker General Motors Co (N 🙂 No. 1 to spin off its growing EV assets, an idea CEO Mary Barra didn't turn down.
Others with SPAC deals include Velodyne Lidar Inc, online used car market Shift Technologies Inc, and electric vehicle powertrain maker Hyliion Inc, and Reuters has reported that electric bus maker Proterra Inc was in talks for such a deal.
SPACs give these companies faster access to capital than a typical IPO, especially in a sector where a vehicle costs billions of dollars to build, industry officials said.
But companies better act quickly to reap the benefits, said a SPAC manager. "It would be up to the company to try to strike while the iron is hot," said the executive, who asked not to be identified. "If you have access to capital, take it."
The private market is not completely closed to those with strong partners. Last month the EV startup Rivian, supported by Amazon.com Inc (O 🙂 and Ford Motor Co. (N 🙂 brought in another $ 2.5 billion.
Some industry leaders fear that easy money will create problems for less developed startups if those companies can't keep their promises fast enough. The shares of Fisker Inc's SPAC recently had a hit when the EV startup announced it wouldn't close a deal until the end of July as it had hoped, Volkswagen AG's (DE 🙂 EV platform for its vehicles to use.
"We are sitting on what I think is a massive bubble. There will be a bubble pop," said an EV manager who did not take the SPAC approach to fundraising and asked not to be identified. "A cloud will be drawn across the room."