Investing

Which EV Maker Is Going Bankrupt Next?

Austin Smith

Published: June 24, 2024 10:36 am

Fisker has filed for bankruptcy, highlighting the ongoing struggles in the EV market, despite notable successes like Tesla’s (NASDAQ: TSLA) Model Y. Other EV companies, including Lucid (NASDAQ: LCID) Motors, Faraday Future, Polestar (NASDAQ: PSNYW), and Canoo (NASDAQ: GOEV), face significant financial challenges. While some, like Lucid and Polestar, have strong financial backers or growing product lines, others like Faraday Future and Canoo are seen as likely candidates for bankruptcy in the near future.

Transcript:

Austin, we have another EV bankruptcy.

Fisker has filed for bankruptcy. Again, the company has faced multiple challenges, including delayed production, poor vehicle reception, and financial difficulties.

But I just wanted to know from you, EV stocks in general have been struggling. So what does this say about the EV market?

And if you want to hazard a guess, which brands could actually collapse next?

Yeah, you certainly didn’t hear it here first, but we’re going to call it, there are going to be some other EV brands to declare bankruptcy.

Let’s just be clear about this. It’s a difficult time for EVs right now.

Even though 2023 was a fantastic year for Tesla, specifically for the Model Y, which became the best-selling vehicle globally, now, as we’re in a new year, many consumers are preferring hybrids or internal combustion engine vehicles.

It would appear that a lot of the incredible growth in EVs the last few years was just simply pulling forward demand or early adopters, whatever you want to call it.

But there’s a long list of EV upstarts out there. Let’s go through some of them and talk about which ones may be next to knock on bankruptcy’s door.

So one is Lucid Motors. Now, this is known for its luxury EVs. The company has solid engineering, but it struggles with really high prices and low volume sales.

In the last 12 months, the company recorded only $618 million in revenue. Now, that is up from 2022 and 2023, but only modestly.

Meanwhile, operating expenses continue to balloon, the company’s burning just shy of $3 billion a year, and they barely sold over 6,000 vehicles last year, and they’re only forecasting 9,000 vehicles in 2024.

Frankly, simply not enough to hit escape velocity. And their next forthcoming vehicle is an SUV, which faces very difficult competition from Tesla, Rivian, and others.

So this one seems like it’s destined for bankruptcy’s door, but they’ve got something in their back pocket, which is the Saudi public investment funds.

And this was the major investor in Lucid. They recently announced an additional billion dollar lifeline to them, which means that although this company has not yet hit a state velocity in terms of production and unit sales, financially they’re probably not going bankrupt because they have this large backer behind them who appears willing to continue bailing them out for the foreseeable future.

So Lucid, absent the Saudi public investment fund, would probably be a bankruptcy candidate, but given that they have that in their back pocket, they’ll probably make it through at least this year.

Another one is Faraday Future. Now, this company delivered a whopping 10 vehicles last year and only recorded $784,000 in revenue.

Look, with a market cap of $187 million and liabilities of over $300 million, the company has spoken. There’s not much more else we need to say here.

Faraday Future appears like it’s on death’s door and they’re on the brink and facing substantial financial losses. They’ve had leadership issues, very overpriced models.

I believe their current car is priced at about $309,000. Doesn’t appear that attractive, my personal opinion, but it makes bankruptcy seem inevitable.

So Faraday seems destined for bankruptcy.

Polestar. This is kind of an interesting one. This is a company that has connections with Volvo. It was originally spun out as a performance division. It’s got financial backing from Geely, which is now taking over more ownership of Volvo.

Now, I’m sorry, Polestar. Now, Polestar got a great tailwind when Hertz initially committed to buying the 65,000 vehicles from them in their big sort of famous EV push, which they’ve now completely done a 180 on.

So that is a huge blow to the company. But unlike some of the other EV companies we’re talking about, Polestar does have a more complete lineup of vehicles.

They’ve got the Polestar 2, the Polestar 3, and the Polestar 4. It has demonstrated real traction. They saw $2.8 billion in sales in the last 12 months.

That’s substantial. And they delivered 7,200 vehicles in just the first quarter of this year. So they are picking up some steam.

And despite the challenges, particularly with losing those Hertz orders, they have secured significant amount of funding from Geely.

They’re growing their vehicle lineup, and they’ve demonstrated capacity to produce vehicles at scale, and that there is a consumer appetite out there.

So Polestar seems to be good today. No major risk of bankruptcy.

Let’s move on to the next few quickly. Tesla, it’s not even an option. They had the best-selling car on Earth last year, but we do have to mention it. They’re certainly not a contender for bankruptcy here.

Rivian, many people have talked about a bankruptcy with Rivian, but they have a strong balance sheet with nearly $6 billion in cash.

They have an R1 lineup refresh coming, a smaller R2 SUV and compact R3 vehicle. They’ve had prior big investments from both Amazon and Ford.

They’ve demonstrated ability to generate capital before they even had vehicles to show for it. I think bankruptcy is unlikely here given their balance sheet, the product lineup that’s coming, and their history of being able to generate capital.

Now, last on the list is Canoo, ticker symbol G-O-E-V. This is a $122 million company. It has no mass market presence or appeal.

So far, the company’s orders are contained to commercial fleet commitments from Kingbee, Walmart, who’s an investor, and others. But we’re talking about a grand total of less than 20,000 vehicles committed.

And as we saw previously with Rivian and Amazon’s agreement, where Rivian was going to deliver commercial vehicles to Amazon, and then Amazon ended up pulling back, and hey, the same story with Hertz and Tesla as well.

These large orders are relatively easy to commit to, and they’re much harder to materialize. The company hasn’t broken a million dollars in revenue in the last year, so I’m going to call it Canoo is destined for bankruptcy.

All right. So it sounds like tier one, Canoo, most destined alongside maybe Faraday in there. Then we’ve got some companies on precarious footing, but with funding and Polestar, we had Rivian, we had Lucid, and then in the highest safety tier of Tesla of, come on, they’ve got the best-selling car on earth. Is that how you’d sum it up?

Yeah, absolutely.

Yeah, so certainly we’re going to be, I believe we’ll be seeing some more EV bankruptcies here in the next 12 months in Canoo and Faraday, my two top picks.