Several weeks ago, I was chatting with Patrick Healey, founder and president of Caliber Financial Partners, about SPACs. He pointed out that many of the targets of special purpose acquisition companies, also called blank-check companies, were electric vehicle startups.
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Later on, while I was compiling a list of all the announced VC-backed SPAC targets, I realized he was absolutely right (thanks Patrick for the column idea!): Several companies that have announced they’re going public this year through a merger with a SPAC are indeed related to electric vehicle technology.
Perhaps the most notable EV-related blank-check target was one of the first startups to put SPACs on the map. Electric-truck maker Nikola Motor Co. went public through a SPAC merger in summer 2020, and was one of a few high-profile SPAC transactions that helped make blank-check company mergers en vogue (DraftKings and Virgin Galactic were the other two).
This year, a slew of electric vehicle companies have announced their intention to go public through a SPAC. Among them are electric-bus maker Proterra, charging station company EVgo, electric-truck startup Xos, and Lucid Motors.
So, why are electric-vehicle makers and EV-adjacent companies such attractive SPAC targets?
There’s a few possible reasons.
Revenue projections vs. actual revenue
I circled back to Healey, and according to him, a key part is that SPACs allow for companies to use future revenue projections: something an initial public offering doesn’t allow for.
“The reason I think EV and high-growth companies are being targeted by SPACs largely has to do with (the fact that) some of them do not produce revenue yet,” Healey told me. “The way that they’re able to go public through a SPAC is the SPAC process allows them to use revenue projections out into the future to entice investor demand. Whereas, if you do it through the IPO process, the SEC doesn’t allow you to do that.”
Some of the makers of the electric vehicles themselves have not actually brought a product to market yet. Nikola and Lucid, for example, don’t have an electric vehicle available for purchase.
Electric air taxi startup Lilium Air Mobility (not exactly a vehicle, but also in the electric transit space) also announced plans to go public through a SPAC this week, and rival Joby Aviation said in February that it would go public through a blank-check merger as well. Neither has a product on the market.
But, there’s enough promise that these companies will have a vehicle on the market eventually that some investors want in on the deal.
Electric vehicle companies are also in a capital-intensive business, so they need money to grow.
Raising capital via a SPAC, rather than traditional venture capital financing, probably presents better terms in the market, Healey said. The companies likely wouldn’t have to give up as much equity or dilute existing shareholders as much as they would if they got a cash infusion from a VC firm.
Giant market potential
First, Tesla’s stock performance over the past year indicates we might be at the point where electrification can be mainstream, according to Walsh. The question of consumer risk (“will the dog eat the dog food,” as he put it) has been answered.
But there are other factors, too. EV brings together two huge markets that have been historically separate —transportation fuel and electricity — to create a giant market.
“It’s a huge opportunity that will attract large amounts of capital,” Walsh said.
There’s also the issue of competition between EV companies and market enthusiasm. Even if an EV company isn’t considering a SPAC, it’s hard to not consider one when its competitors are bolstering their balance sheets via such deals.
“We have three SPACs in our portfolio, and a lot of (them are) saying, ‘Listen we’re in the EV charging space, or we’re in the electrification space, or we’re in the energy storage space … and our competitors are doing SPACs. So even if we don’t want to do a SPAC, they’re getting capitalized,” Walsh said.
A series of public policy moves have made it so that EV is the future. California introduced a mandate that all new cars sold in the Golden State must be zero-emission by 2035. The United Kingdom and Norway have introduced similar mandates, and legacy automakers like General Motors and Ford have publicly announced their commitments to an electric future to comply.
“I think they (investors) perceive this as a massive long-term opportunity,” Walsh said. “These transitions don’t happen often in history. You’re talking centuries or decades apart from each other.”
Illustration: Dom Guzman
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