Focus: EV disruptors hit industry speed bumps that have plagued legacy automakers for years

Electric Last Mile Solutions

13/07/2022 18:03

By Joseph White and Ben Klayman
    DETROIT, July 13 (Reuters) - Electric vehicle startups that
promised to disrupt the automotive industry by using a software-
and technology-heavy approach are now scrambling to cut costs
amid the type of industry slowdown that has bedeviled Detroit
automakers over the years.
    To remain a player in an increasingly competitive business
as incumbent automakers introduce their own EVs, startups like
Rivian Automotive Inc  RIVN.O  and Arrival SA  ARVL.O  will need
to tighten their belts and in some cases reinvent themselves,
industry officials and analysts said.
    In many cases, they are partnering with larger,
deep-pocketed companies to aid their survival and provide access
to funds. 
    Those who fail to control their spending or find the right
partners could wind up like electric delivery van startup
Electric Last Mile Solutions  ELMS.O , which filed for Chapter 7
bankruptcy protection last month. Industry officials do not
expect that to be the last startup to hit a pothole.
 urn:newsml:reuters.com:*:nL4N2Y13I5
    "Like every company that is burning money, you need to make
the right adjustments so that you can get to the other side of
the desert," said Evangelos Simoudis, a Silicon Valley venture
capital investor and industry adviser.
    Even as overall new-vehicle sales have slumped during the
COVID-19 pandemic, EV demand remains strong. Global sales of
battery electric and plug-in hybrid electric vehicles nearly
doubled last year to 6.6 million, according to the International
Energy Agency.
    On Tuesday, British startup Arrival said it planned to cut
spending, reorganize its business and potentially shed 30% of
its workforce in response to the challenging economic
environment.  urn:newsml:reuters.com:*:nL4N2YT3EL
    Arrival, trying to launch production of electric delivery
vans, is following the lead of industry stars Tesla Inc  TSLA.O 
and Rivian, which have cut jobs as supply-chain snarls hobbled
production, holding revenue below expectations and sending costs
soaring.
    Arrival said its $500 million in cash on hand would last
until late 2023 with the proposed cuts. The question is whether
that will be enough.
    "One billion dollars doesn't last very long in the auto
business. That's a redesign for a Malibu or something," Cox
Automotive executive analyst Michelle Krebs said.
    
    NO MORE 'FREE MONEY'
    Partnerships or long-term contracts with financially strong
companies are one lifeline for EV startups.
    Stellantis  STLA.MI  CEO Carlos Tavares said on Wednesday 
that rising inflation is cutting off easy access to "free
money."
    "This means some startups will have a little bit more
difficulty to develop by themselves," he said during an awards
presentation to startups with whom the carmaker works.
    Rivian not only has a large deal to supply vans to
Amazon.com Inc  AMZN.O , but the online giant also is a major
investor. 
    Rivian Chief Executive R.J. Scaringe told employees on
Tuesday that job cuts were coming in order for the company "to
stay ahead of the changing economic landscape."  urn:newsml:reuters.com:*:nL1N2YT1T5
    Lordstown Motors Corp  RIDE.O , an Ohio startup that briefly
had a larger market value than Ford Motor Co  F.N , has
restructured, selling assets to and partnering with Taiwanese
contract manufacturer Foxconn  2317.TW .
    
    'INCREDIBLY TOUGH BUSINESS'  
    The staff cuts and restructuring in the new EV industry
reflect challenges common to all automakers, and some that are
unique to small companies in a capital-intensive industry where
even global economies of scale sometimes are not enough to
assure profitability.
    When Tesla CEO Elon Musk last month told top executives in
his company in an email that he had a "super bad feeling" about
the economy, and said the world's most valuable automaker needed
to cut its salaried staff by 10%, he was amplifying concern
about the global economy other CEOs shared.  urn:newsml:reuters.com:*:nL1N2XQ0PI
    "This is an incredibly tough business," said Barry Engle, a
former auto executive who started a special-purpose acquisition
company that merged with air taxi startup Lilium  LILM.O . "With
the success of Tesla, it's easy to forget that was a story that
was 20 years in the making and along the way there were many
points where they stared death in the face."
    In Tesla's case, economic turbulence struck as the company
was launching large assembly plants in Texas and Germany.
Supply- chain bottlenecks had turned those operations into
"money furnaces," Musk told members of a Tesla fan club last
month.  urn:newsml:reuters.com:*:nL1N2Y92YN
    
    DETROIT NOT IMMUNE
    Detroit automakers are at risk too from rising money costs
and persistent supply-chain problems.
    At General Motors Co GM.N , executives look at a dashboard
of market indicators "every day, every week, every month," Chief
Financial Officer Paul Jacobson told investors at Deutsche Bank
conference in June. "I don't want to end up in a situation where
we walk off a cliff."
    So far, established automakers have been able to raise
prices on their popular, high-volume combustion trucks and SUVs
to keep cash flowing. GM, Ford and Stellantis have so far stuck
to their full-year profit forecasts.
    EV startups do not have established model lines churning out
cash the way the Ford F-series truck lineup does. The slumping
stock market and rising interest rates have made it tougher for
new companies to raise fresh capital from investors. That
intensifies pressure to start building and selling vehicles, and
to slash expenses to conserve cash on hand.
    Canoo Inc  GOEV.O  shares got recharged on Tuesday when the
company said it had landed the deal to deliver 4,500 delivery
vans to retailer Walmart WMT.N .  urn:newsml:reuters.com:*:nL4N2YT275
    Canoo shares rose more than 50%, although from a low base.
The company told investors in May its management had
"substantial doubt" about the company's ability to remain a
going concern.  urn:newsml:reuters.com:*:nL5N2X294P

 (Reporting by Joseph White and Ben Klayman in Detroit
Additional reporting by Nick Carey in London
Editing by Matthew Lewis)
 ((benjamin.klayman@thomsonreuters.com; 313-600-2277; Reuters
Messaging: benjamin.klayman.thomsonreuters.com@reuters.net))