Lordstown Motors Corp. on Monday offered a glimpse into the impact of such pandemic-induced supply-chain constraints and their costs on these startups. Shares of the Ohio EV company were falling more than 9 percent in post-market trading after it slashed its production goals for the year if it does not receive additional funding.
The auto industry by its nature has many barriers to entry. And the business is no stranger to scarcity. But the latest challenges come after other unprecedented shutdowns last year because of the COVID-19 pandemic, which led to postponements of EV launches by Lordstown Motors, Lucid Motors Inc. and Rivian Automotive Inc.
These startups have investors to impress and limited capital to do so. They lack the decades-long relationships with suppliers enjoyed by their legacy rivals, which could risk their ability to obtain the scarce microchips and other components in a competitive market. The newcomers' smaller distribution, however, means they don't need as many chips as their mass-producing competition.
"I think it will limit the supply of the cars of a launch, but not the actual timing of the launch," said Daniel Ives, analyst at investment firm Wedbush Securities Inc. "For example: Customers are expecting to get their vehicle in August, and they won’t until December. We could see some snail-like launches."
Lordstown's Endurance
Production of Lordstown Motors' Endurance electric pickup truck is on track for its September launch in the more than 50-year-old Mahoning Valley plant it purchased from General Motors Co. in 2019 and now is revamping.
The number of vehicles made, however, "will be limited and would at best be 50 percent of our prior expectations," the company noted in its first-quarter earnings report. The automaker anticipated production of 2,200 trucks this year, and if the company doesn't get additional funding it will build about 1,000 instead, CEO Steve Burns said on the company's first-quarter earnings call.
"Obviously, we don't want to do that with a strong appetite by customers for this vehicle," he said.
The startup, like every automaker, says it is seeking visibility into the chip shortage deep in the supply chain: "We went ahead and upfront bought those, enough to get through this year, so we're not constrained," Burns said of the chips, noting that Lordstown also has the battery cells it needs sourced.
But the startup is battling "challenges," including "significantly higher than expected expenditures for parts/equipment, expedited shipping costs, and expenses associated with third-party engineering resources," Burns said in a news release explaining the company's need for more capital. That was reflected in the firm's $92 million research-and-development costs, chief financial officer Julio Rodriguez said.
The startup is pursuing a U.S. Department of Energy Advanced Technology Vehicle Manufacturing loan, which it is pushing to complete in the next few months.
Adding to Lordstown's difficulties, a report from short-seller Hindenburg Research in March accused the startup of misleading investors. Hindenburg claimed, in part, that orders for the Endurance truck were “largely fictitious and used as a prop to raise capital and confer legitimacy." Year-to-date, the company's shares have lost more than half their value.
Lordstown has formed a committee to investigate the claims. The company is cooperating with a Securities and Exchange Commission investigation.
Lordstown has continually touted its pre-orders for the Endurance. In January, the company sent out a press release saying it had “more than 100,000 non-binding production reservations from commercial fleets." On Monday, Burns said the company is converting reservations to vehicle purchase agreements and has completed about 30,000 of those with "most" providing a down payment.
Jimmy Dobson was one customer who made a reservation. The native of the Mahoning Valley, where the Lordstown plant is located, owns a SERVPRO franchise in the area and signed a letter of intent last year for 1,200 trucks in hopes of supporting the local manufacturer.
Now, Dobson says he's "lost confidence" in the company after several meetings with management.
“We aren't going to risk our fleet with that," he said. "It has nothing to do with the actual truck, although there are some issues with that, but it's just the management that we lost confidence in. We were led to believe they were much further along.”
Dobson said he felt “manipulated” by the marketing team. Lordstown didn't respond to a request for comment on the claims.
Dobson has a fleet of Fords and said he is interested in the new electric F-150 Lightning truck, which is scheduled for production next year.
Startup Advantages
Despite the challenges, startups do have some advantages compared to legacy automakers. The lead time between designing a model and its launch often is shorter for the newbies, which means they may be more responsive to changes in supply, said Sam Fiorani, vice president of vehicle forecasting at AutoForecast Solutions LLC.
"Because these are electric vehicles, and they are using ground-up designs, they could be using a different design of chip," he said. "If that's the case, they could be newer and not be tangled in the automotive chip issue."
Newer versions of the chips also are often capable of doing more functions than older ones. The semiconductors that range from generic to specialized are used in many consumer electronics, including vehicles' automated driving functions, heated seats and infotainment systems.
The shortage has created some volatility from investors, Ives said. In addition to Lordstown's shares falling year-to-date, Fisker Inc.'s stock is down 17 percent, and Nikola Corp.'s has fallen 25 percent. Churchill Capital Corp IV, the blank-check company with which Lucid said in February it intends to go public, has more than doubled since the start of the year, though since the announcement of the merger, the stock is down 67 percent.
“Anyone can come up with a prototype and something that looks cool and a nice presentation, but you've got to get the funding to make those factories and then make that car right over and over and over," said David Whiston, a senior autos equity analyst at investment research firm Morningstar Inc. "A 95 percent accuracy rate isn't good enough."
Still, there's a $5 trillion market worldwide for EVs over the next decade, Ives said, though EV leader Tesla Inc., which made the move from startup to established manufacturer, has yet to turn a profit without the help of selling carbon-emission credits to its competition and revenues from cryptocurrency investments.
But there's growing consumer demand. U.S. electric-vehicle sales surpassed 3 percent for the first time in March, according to market researcher IHS Markit Ltd.
Vehicles On Way
First in the pipeline is Rivian in Irvine, California. The private startup backed by Amazon.com Inc., Ford Motor Co. and others declined to comment on the semiconductor shortage, but spokeswoman Amy Mast confirmed the company is on track for the launch of its $75,000 R1T pickup and slightly more R1S SUV this summer after delaying it from 2020 in a plant in Normal, Illinois, formerly operated by Mitsubishi Motors Corp.
Detroit-area startup Bollinger Motors also declined to comment on what the semiconductor shortage means for the launch of its pricey B1 SUV and B2 pickup. The Oak Park-based EV company has said the pandemic has delayed its plans to begin production. It previously planned to do so later this year for its $125,000 vehicles with a third-party manufacturer. CEO Robert Bollinger, who is providing initial funding for the endeavor, had anticipated announcing a partner late last year, but a name still has not been shared.
Meanwhile, Lucid is on track with its forecast outlined in its plans to go public, CEO Peter Rawlinson said earlier this month. The Newark, California, company said it intended to produce 20,000 of its all-electric Lucid Air sedans. Launch of the $169,000 Dream Edition in Casa Grande, Arizona, was supposed to happen this spring, but "COVID-induced delays" have pushed that to the second half of the year, the company said in March.
As for semiconductors, Rawlinson says the company is monitoring the situation daily and has taken actions to mitigate risk. The company declined to specify what those steps were. Rawlinson said it uses 59 electronic control units in each car that monitor the charging of a vehicle. Each unit includes multiple chips.
“There’s pros and cons because we’re relatively low volume to start with,” said Rawlinson of being a startup during the Financial Times’ Future of the Car virtual conference. “We’re not facing the volume demands of a volume automaker. We don’t have the purchasing power and clout of an established player. That’s minus points. … It’s an ebb and flow.”
Nikola, a startup focused on delivering battery-electric and hydrogen fuel cell-powered semis, has faced its own scrutiny by Hindenburg. Last year, a report led to the resignation of CEO Trevor Milton, an admission by the company he misled investors on nine separate occasions, and a blown-up alliance with GM that would have had the Detroit automaker manufacturing Nikola's electric Badger pickup truck. That program is now paused, according to the company's communications department.
Nikola’s first Tre batteryelectric semis are slated for debut later this year. The company is planning to start trial production at its joint venture manufacturing facility at Iveco SpA’s industrial complex in Ulm, Germany, next month. Trial production at Nikola’s Coolidge, Arizona, plant is supposed to start in July, according to its first-quarter earnings report update.
During the earnings call, CEO Mark Russell acknowledged the company has experienced a battery cell supply constraint that could have affected its truck production plans, which call for several dozen to be produced this year. But Nikola has “a commitment now to have enough cells from the supplier to get in that 50 to 100 range, but not more." The startup is also monitoring other potential supply constraints, including chips.
Fisker Inc. doesn't plan to launch its Ocean SUV until late 2022. The Manhattan Beach, California, company is in negotiations with suppliers, said Simon Sproule, senior vice president of communications. Knowing which chips are readily available is influencing the Ocean's design, Burkhard Huhnke, chief technology officer, said last week during an earnings call.
Canada-based Magna International Inc. will manufacture the Ocean in Austria. Fisker this month also announced a partnership with Foxconn Technology Group to produce its second EV in the United States. Foxconn, formally known as Hon Hai Precision Industry Co. Ltd., and Magna have helped Fisker to secure needed chips, Huhnke said.
Most chips, however, are produced in Asia. President Joe Biden's initial $2.3 trillion infrastructure proposal included a $50 billion boost to the U.S. semiconductor industry, and automakers like GM and Ford have supported domestic production. Another $53 billion proposal in the Senate is meant to rival China. Fisker says it is taking a “holistic” approach to the matter.
“If you advantage one country, then that would imply you disadvantage another,” Sproule said. “If something is scarce, it’s where we want to be selfish, and I think every manufacturer is. You want to secure your own supply. That’s very natural, and that’s really what we’re holding our suppliers to is to ensure robustness of supply, as well.”
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