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(Bloomberg) -- Two years into the SPAC merger boom for electric-vehicle startups, companies are having a tough time finding cash to actually produce cars.
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First Lordstown Motors Corp. said it would back off investing in the tools to build its electric trucks until capital markets loosen up. Two days later, EV Startup Canoo Inc. issued a Going Concern notice to alert investors warning that it could run out of cash.
Without more money, some face the real danger of not making it. Those that can raise money could end up paying a lot more for it or just not getting as much as they need.
“The story has changed,” said Bloomberg Intelligence analyst Joel Levington. “These companies are burning huge amounts of cash. Every day that the market goes down their liquidity gets more challenged.”
The problem, Levington said, is that convertible debt for many of the smaller EV companies with little or no revenue is costing more than 10%. They can’t issue much secured debt because they lack hard assets to put up as collateral. With stock prices depressed, issuing equity will be very dilutive to existing shareholders.
Canoo is the most recent company to report a potential liquidity crunch. The company said on May 10 that it has lined up $300 million in funding from existing shareholders and an equity purchase agreement with Yorkville Advisors, along with filing for a $300 million shelf offering. That pads a cash reserve that was just $104.9 million on March 31.
Burn Rate
The company will likely need a lot more. Bloomberg Intelligence forecasts that Canoo will burn through a total of $1.1 billion this year and in 2023, which means it will have to keep trying to raise funds.
Just two months ago, Chief Executive Officer Anthony Aquila said his company was “very focused” on avoiding dilution. Aquila said in March that Canoo was instead looking at asset-backed loans and working-capital credit lines -- options he didn’t mention on its first-quarter earnings call this week.
Lordstown Motors, meanwhile, is delaying plans for its Endurance pickup truck. The company reined in a goal to raise $250 million this year, saying that it will seek $150 million instead.
“As you all well know, the capital markets have not been open for the sector, notwithstanding we continue to work with our advisers on available financing alternatives,” Adam Kroll, Lordstown Motors’ chief financial officer, said on the startup’s first-quarter earnings call on May 9. “However, with our options limited at the moment, we are taking a balanced and disciplined approach to allocating our current capital.”