|Little-known EV and lidar firms are raising billions in Tesla’s shadow |
Companies are using the latest Wall Street fad, known as a SPAC, to go public. Timothy B. Lee - 8/26/2020, 10:55 AM
Lidar startup Luminar is going public, the company announced on Monday. Instead of going with a traditional IPO, Luminar is jumping on the latest Wall Street fad: merging with a special purpose acquisition company (SPAC). Merging with a SPAC allows a startup to go public more quickly, with less paperwork and more certainty about the sale price. The deal gives Luminar, which only expects to sell about 100 lidar sensors this year, a post-money valuation of $3.4 billion.
It's the latest in a string of companies connected to the electric and self-driving car revolutions that have gone public using a SPAC. Most have found strong interest from investors.
In March, electric truck startup Nikola announced that it would go public with help from a SPAC. By the time the merger concluded three months later, Nikola's value had shot up seven-fold. It has since settled down to four times the initial sale value. That values Nikola—a company that has yet to deliver a single vehicle to customers—at $14 billion, about half the value of Ford.
The hydrogen fuel strategy behind Nikola’s truck dream
Nikola's success triggered something of a gold rush among little-known electric vehicle makers. Luminar and another lidar company, Velodyne, have now joined the SPAC bonanza.
It's impossible to be sure what drives market prices. But one factor has undoubtedly been the rapid rise of Tesla's stock. Since the start of the year, Tesla's share price has more than quadrupled, making it the world's most valuable automaker. Investors seem to be looking around for the "next Tesla." That has made it easier for any company with a plausible claim to that title—or even just a Tesla-adjacent business model—to raise money.
An EV gold rush
Last month, after a reported bidding war among SPACs, electric vehicle maker Fisker announced a SPAC deal that valued the company at $2.9 billion. The value of the SPAC's stock—itself a proxy for Fisker—is up more than 30 percent since the announcement, a sign investors considered it a good investment.
Earlier this month, a little-known electric truck maker called Lordstown Motors announced a SPAC deal that valued the company at $1.6 billion. The SPAC's stock has since risen by 50 percent.
Last week, electric vehicle startup Canoo jumped on the SPAC bandwagon with a deal valuing the company at $2.4 billion. This deal has gotten a lukewarm reception from the market, with the SPAC's share price little changed since the merger was announced.
Tesla rival Rivian raises $2.5 billion to make electric trucks and SUVs
Aside from Nikola, none of these companies have completed their mergers. Theoretically, the deals could still fall apart before closing.
One of Tesla's most formidable EV rivals, Rivian, has not yet joined the SPAC bandwagon. But it has been raking in cash the old-fashioned way, with a $2.5 billion fundraising round last month.
While investors may be thinking of these companies as possible "next Teslas," they all have a long way to go. Tesla has been selling cars for over a decade. It has demonstrated that it can sell hundreds of thousands of vehicles a year and generate a modest profit in the process. By contrast, none of these would-be Tesla killers has started delivering its products to customers. A lot could still go wrong on their path to commercialization. Investing in them is a big risk.
Lidar makers join the SPAC party Last month, lidar company Velodyne announced a SPAC merger valuing the company at $1.8 billion.
Velodyne is not a startup. Started as an audio equipment manufacturer decades ago, Velodyne has been selling lidar ever since founder David Hall invented modern lidar sensors in 2005. Aside from Tesla, most companies working on self-driving technology consider lidar sensors to be essential.
Velodyne continues to be the lidar industry leader. Until recently, Velodyne was able to charge as much as $75,000 for its best sensors, creating a juicy opportunity for rivals. Its dominance is threatened by a number of startups that are trying to build better, cheaper lidar sensors.
Volvo plans cars with lidar and “eyes off” highway driving by 2022
One of those rivals is Luminar. While Velodyne's classic lidar design mounts 64 (or, more recently, 128) lasers on a spinning gimbal, providing 360-degree coverage, Luminar sells a fixed sensor with a single laser that scans the scene in front of the vehicle.
Luminar believes it can get the cost of its sensor down below $1,000, making it viable for the mainstream automotive market. Luminar scored a major coup back in May when it announced a contract to supply lidar to Volvo beginning in 2022. It was the first time an automaker had committed to purchasing high-end lidar sensors for use in production vehicles.
Unsurprisingly, Luminar has rosy predictions for its own future. Luminar expects to sell only around 100 units in 2020. But Luminar hopes to ink more deals with automakers in the next couple of years and thereby ramp up sales to 600,000 units by 2025.
Ironically, surging investor interest in electric vehicle and lidar companies comes in the wake of cooling venture capital interest in the closely related autonomous vehicle sector. Zoox, a startup widely respected for the quality of its self-driving software, was recently forced to sell to Amazon at a fire-sale price because it couldn't raise another round of funding.
Zoox was unusual among self-driving vehicle companies because it was planning to design its own electric vehicle from scratch. If it could have held out for a few more months, it might have been able to jump on the SPAC gravy train.