EV industry M&A hits the skids

Data InsightDealspeak 18 October

EV industry M&A hits the skids

North America’s electric vehicle (EV) industry saw a surge of dealmaking activity in 2020 and 2021, when Lucid Group [NASDAQ:LCID], Nikola  [NASDAQ:NKLA], Proterra and others underwent blank check mergers on the way to a public listing.

Now, many EV companies are teetering on the edge as inflation, supply chain issues, and the challenges of turning profitable take their toll.

“A lot of people raised money without realizing how challenging their business is,” said John LaGourge, VP of corporate development at Vicinity Motor [NASDAQ:VEV], a Canadian electric bus and truck maker. 

Several have since gone bankrupt or been delisted from stock exchanges.

Proterra, an electric bus and battery maker, became the latest to file for chapter 11 in August and its assets are now expected to sell at auction. It had raised USD 648m during its merger with a special purpose acquisition company (SPAC) in June 2021, on top of more than USD 750m in prior venture funding. Others to have sold assets during bankruptcy proceedings in the last year are Lordstown Motors and Electric Last Mile.

Mergermarket data show EV dealmaking peaked in 2021, when 24 transactions totaling USD 45.9bn were announced in North America, led by Lucid Motors’ USD 28.5bn SPAC merger. Activity has since slowed with the collapse of the SPAC craze. Six deals worth a disclosed USD 102m have taken place in the year to date (16 October).


Medium-duty niche

High operating costs are causing much attrition among EV makers. “Factories are a sword of Damocles for many in the industry,” said Brendan Riley, president of GreenPower Motor [NASDAQ:GP], which relies on contract manufacturing to produce its electric transit buses and class 4 trucks.

Besides GreenPower and Vicinity Motor, other EV companies in the commercial-vehicle market include Motiv, SEA Electric, Xos [NASDAQ:XOS] , Workhorse Group [NASDAQ:WKHS], and Lion Electric [NYSE:LEV], whose 900,000 square foot plant in Joliet, Illinois is the largest dedicated to zero-emission medium and heavy-duty vehicles.

Many that went public are now trading at a tiny fraction of 2021 highs. Lightning eMotors [OTC:ZEVY], which went public via a USD 586m SPAC in May 2021, was delisted from the New York Stock Exchange in September after its market cap sank below USD 15m.

To survive and thrive, some EV companies see competitive advantage in underserved markets. Vicinity Motor, for example, aims to focus on medium-duty trucks because the 550,000 class 3-to-5 trucks that are sold in North America annually are not enough to interest the big car or truck makers, who serve the far larger light- or heavy-duty markets instead.

Those that grab market share may attract buyers. Vicinity is still small but now has a USD 150m order book. “If you start making half a billion dollars in trucks a year, someone is going to want that,” said LaGourge. 

Battery power

M&A activity for North America’s EV battery makers has shadowed that of EV manufacturers. After 2021’s record high of 23 deals totaling USD 37.3bn, M&A dropped to USD 2.3bn across 17 deals in 2022 and is down to USD 1.7bn across 11 deals in the year so far.

Many went public via a blank check merger after landing significant investments from carmakers. They included SES AI [NYSE:SES], Solid Power [NASDAQ:SLDP], QuantumScape [NYSE:QS], and Enovix [NASDAQ:ENVX]. The shares of many now trade underwater from their public listings. What’s next for them?

SES AI, which is developing an anode made of thin lithium metal instead of the graphite prevalent in today’s batteries, trades at USD 2.46, well below its USD 10 SPAC listing price.

But because battery technology is little understood among private-equity or activist investors, targeting them in a buyout is unlikely, argued a spokesperson. What is more, SES AI CEO Qichao Hu’s super voting shares gives him control of the company’s destiny.

There’s also hope and opportunity ahead: States such as New York are mandating the use of electric school buses by 2035, with purchases starting in 2027. North America’s EV industry is poised to grow at a CAGR of 16% to roughly USD 228bn in 2030 from USD 63bn in 2022.

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