Should Big Auto spin off its EV business? – an EV sector roundup

EV IPO valuations are higher today than Paul Thomas Anderson and Quentin Tarantino were in the 90s, causing some auto analysts to suggest that traditional auto manufacturers like Ford and GM should spin off their EV business to benefit from institutional money taking advantage of retail investors’ unfounded, illogical, and manic pursuit of yield, but is joining the public market’s drunken debauchery of cheap money and sleazy ethics the right answer?

Rivian recently hit the market with a $90 billion dollar valuation, making it the second most valuable car company in the sector. The company had yet to sell a truck.

This offense before heaven and humanity has its roots in Silicon Valley private equity firms who first brought us the dot com boom and then bust. The heinous pursuit of speculative profits based on vaporware companies and criminally optimistic projections should have served as a hard lesson to market participants.

Instead, our worsening global economy and systemic income inequalities drove retail investors and market newbies to continue pulling their money from traditional sources of yield such as bonds and banks to gamble their fortunes in equities.

 

Unfortunately, even when the pandemic finally exposed the giant cracks in our broken financial paradigm, the Fed kept its head buried in the sand and their resulting cheap money created the current EV bubble.

Tesla, led by its fraudulent, social media whoring, braggart of a CEO, sits on top of this shit pile. Yes, the company responsible for the inexcusably mislabelled Full Self-driving option has a market cap more than the top nine auto manufacturers combined.

That means Volkswagen, Toyota, Nissan, Hyundai, GM, Ford, Honda, Fiat Chrysler and Peugot which sold 44.58 million units in 2020 are somehow worth less than Tesla, which struggled to sell just under 500K units in the same amount of time.

This makes no sense, none whatsoever. Tesla would have to ramp up production and sales by 8,816% a year, to include trucks, big trucks, cars, vans, SUVs, etc. to be worthy of its valuation. It has not, and it is incapable of doing so, now, or ever.

Before the Tesla ass-kissers jump in and suggest the value in Tesla is much broader than its vehicle manufacturing, let me say this; Musk finally admitted that the Solar City Panel purchase he railroaded the company into is dead in the water and didn’t perform as expected. Also, the power storage business, when its not catching on fire, being pulled off the grid and getting Tesla pulled into court over non-performance, doesn’t seem to be doing much either.

Combine this with Kimball’s recent insider trading, Elon’s manipulation of crypto markets and his using Tesla as collateral to fund Space X, and you have a travesty that will not only screw its investors but bring the entire public market to its knees as inflation climbs and all the Tesla/crypto paper millionaires withdraw their riches to pay for $20 loaves of bread.

Regardless of the obvious consequences, this insanity has set a trend for the sector and participants with any clout are pulling in billion-dollar IPOs. Don’t get me wrong, I like Rivian a lot, but it is not and will never be worth $90 billion.

Yes, this state of abysmally illogical market valuation hobbles traditional car manufacturers stuck to the fundamentals that should be running the entire market, but by joining the naked emperor’s parade they are merely stoking the fire that will burn everything down when equities finally crash as they should have done years ago before quantitative easing.

I am all for innovation and market disruption, but the reality of progress and potential cannot be thrown aside. So what if an online purchase takes a week to get to you and you don’t spend $30 on having a burger delivered to your door, the benefits of mindful growth are long-term and sustainable.

It’s time to pop this balloon before it blows up in our face. In support of that, here is a list of medium cap EV manufacturers that deserve your attention more than Musk:

Ev sector competitorsArcimoto (FUV.Q) dropped its Q3 2021 financial results on Monday and reported that it had sold a record 63 new and one used customer vehicles while producing a total of 78 units. The company also settled into its new manufacturing digs in Eugene, Oregon with over 200,000 square feet of manufacturing space on 10 acres of land.

Arcimoto is expecting its final submission of application to the US Department of Energy for an Advanced Technology Vehicles Manufacturing (ATVM) loan in Q4 2021. The company increased its market footprint to accept reservations in Nevada, the fifth state in the EV manufacturer’s national expansion plan.

And doors, doors, doors! The one thing missing that kept me from considering them to be anything more than a weekend recreational vehicle.

Arcimoto is pressing its rideshare mandate with the REEFDrive deal and continuing to work its rentals segment. As I said before, their success is based on a cultural shift, so shorts remain strong at 34.40% of the float. Still worth putting on your radar to see how things pan out over the next 12 months. Do your due diligence!

The company currently trades at $10.46 USD per share, down 11.69% for the week, for a market cap of $414.89 million.

SOLO EV carElectraMeccanica (SOLO.Q) announced at the beginning of November that its strategic manufacturing partner, Zongshen Industrial Group, pulled the trigger and exercised 1.4 million warrants at a $4.00 CAD strike price, generating $5.6 million for the company. Considering that the company was trading for less than the strike price, shows confidence on Zongshen’s part that EM is a going concern.

Q3 2021 financial results showed EM had delivered 21 SOLO EVs during the quarter to both reservation holders and fleet customers.

Cash, cash equivalents and short-term deposits were up, giving the EV manufacturer a $228.8 million USD war chest compared to the $129.5 million it held back in December 2020.

G&A, R&D and sales and marketing expenses were also up in Q3 to $7.4 million, $5.3 million and $2.5 million respectively. All increases were in line with the company’s material growth.

The quarter brought an operating loss of $17.2 million due to the above increased costs. It also deserves mention that the company put off realizing its revenues from the initial commercial SOLO deliveries until Q4.

EM has a strong balance sheet, value accreting partnerships and an active quarter ahead. I like the cut of their jib and look forward to witnessing their progress in 2022. You should check them out but remember to do your homework first.

The company currently trades at $3.42 per share, down 9.55% in the last week, for a total market valuation of $393.11 million.

EV investing in green energyGreenPower Motor Company (GPV.V) is one of my favorites in this sector, so it no surprise the company won Metro Magazine’s Innovation Solutions Award which honors bus companies working to create impactful solutions and innovations in the transportation world. Metro Magazine has been a nationally respected trade paper for bus and rail transit and motorcoach operators since its launch in 1904.

The magazine’s award recognized GPMC’s work with Perrone Robotics to create the first-of-its-kind autonomous, purpose-built, medium-duty shuttle: the EV Star, which was delivered to the Jacksonville Transportation Authority (JTA) in December 2020.

GPMC released its Q2 2022 financial results November 12, 2021, noting 44 vehicle deliveries including 34 sales and 10 leases which generated $4.44 million in revenues, a 57% increase year-over-year.

The company reported a gross profit of $952,911 in the quarter which management explained this compressed total was due to delivering several new models as well as sales of vehicles formally on lease. Executives continue to maintain their expectation of 30% gross margins.

With increased working capital, a growing inventory, and a tight financial makeup, I only expect the news to get better from here. Of course, I would also expect you to do your due diligence before taking what I said as gospel.

GPMC currently trades at $13.71 CAD per share, down 7.36% for the week, for a market cap of $388.56 million.

Kandi EV investing in green energy futuresKandi Technologies (KNDI.Q) released Q3 2021 financial results on November 9, 2021, reporting a 10.3% decrease in revenue to $16.8 million USD for the quarter. The revenue hit was felt the hardest in EV parts sales which totalled $3.2 million compared to $8.4 million in the same 2020 time period.

Off-road vehicles sales slipped as well to $6.8 million from $8.4 million in Q3 2020, while electric scooters and electric self-balancing scooters brought in $6.3 million compared to $0.9 million one year ago.

Unfortunately, gross margins were also down to 16.4% from 20.9% in the same 2020 quarter, partially due to increased supply chain costs and interruptions.

All this and increased R&D costs resulted in a net loss of $7.9 million, but with $289.4 million in working capital, the company has what it needs to remain in play while the EV sector recovers and should soon turn a profit. Pretty amazing considering how long the market had to wait for Tesla to do the same thing.

Again, you should speak to an investment profession before making any additions or deletions to your portfolio.

Kandi currently trades at $4.24 per share for a market cap of $328.11 million.

Lordstown investing green energyLordstown Motors (RIDE.Q) is a mid-cap EV manufacturer that I am still not sold on, but it looks like they are trying to reform themselves into a respectable outfit. The company announced on November 10, 2021, that it had appointed several executive positions to allow the company to focus on key near-term objectives of bringing the Endurance truck to market, developing its strategic partnership with Foxconn and strengthening its engineering capabilities for future vehicle development.

The appointments are as follows:

  • Edward T. Hightower, a 30-year industry veteran, to the position of President. Hightower has deep experience in product development, engineering, manufacturing, and management with a successful senior executive track record at Ford, BMW and GM.
  • Shea Burns, a 25-year automotive industry veteran, will take on the responsibility of Senior Vice President, Operations.
  • Jane Ritson-Parsons will move from chief operating officer to the newly created role of executive vice president-chief commercial officer.

On the heels of that announcement, the EV manufacturer released its Q3 2021 financials on November 11, 2021. This one is a little hard to swallow.

Lordstown recorded a net loss of $95.8 million with cap ex totalling $79.9 million and cash amounting to $233.8 million.

The company’s till is the result of its controversial sale of the Ohio manufacturing facility to Foxconn. Some analysts have decried the transaction, saying Lordstown’s price was nowhere near the real value of the factory and the sale was damaging to investors.

Circle this one carefully as it smells like a budget Nikola and has a lot to do before that taint goes away.

Lordstown currently trades at $5.07 per share for a market cap of $974.61 million.

Workhorse Group (WKHS.Q) is another mid cap stinker down 12.05% for the week. The company has been working to rid itself of controversy since its botched application to fit out the USPS fleet with its commercial product.

False sales reporting, lack of market transparency, allegations of insider trading and general mismanagement will be hard for investors to forget, especially after it announced its Q3 2021 financial results on November 9, 2021.

Luckily for the company and not necessarily investors, it was able to deal with a $200 million debt obligation when the lender converted 85% of that debt into equity, leaving the company with a net cash position of more than $200 million.

However, Workhorse still managed to report a net loss of $81.1 million. Admittedly it was marginally better than the $84.1 million loss it had in Q3 2020, but seriously c’mon.

The stock is 85% down from its 52-week high for good reason. It will be up to the company’s new management to turn this mess into something palatable over the next 12 months. Not confident they will be able to do it, but who knows, stranger things have happened.

Workhorse currently trades at $6.35 per share for a total market valuation of $890.18 million.

XL Fleet Corp (XL) didn’t have a good quarter and reported that during Q3 2021, it had only generated $3.2 million compared to $6.3 million the year before. However, its gross profit only suffered a little, totaling $0.7 million versus $0.8 million in Q3 2020.

On a happier note, the company delivered gross margins of approximately 22% compared to 12% in the prior year and had a cash position of approximately $367 million by the end of the quarter.

Founder and president, Tod Hynes, commented:

“Our third quarter results were negatively impacted by ongoing supply chain challenges continuing to face the global automotive industry, limiting chassis availability on which our new systems are installed. Despite lower sequential revenue, we maintained attractive gross margins driven by the first full-quarter contribution of our recently acquired World Energy business. We further expanded our solutions offering during the third quarter, including the extension of our XL Hybrid System onto popular vehicle models, including the Ram 2500 and 3500 heavy duty pickup trucks and Isuzu NPR-HD.”

Like I said before, I like XL Fleet’s business model, if it can continue to execute on its partnerships and increase sales, it has a great niche slice of the EV market worth investigating.

XL Fleet currently trades at $4.70 per share, down 15.77% in the last five days, for a market cap of $719.40 million.

Alright, I’m going to sign off, let me know if I missed any small and mid cap players and I will try to include them in the next run. Do NOT forget to do your due diligence before making any investment decision. So, pick your winners and change the world. Good luck to all!

**all share prices and market caps are as of Thursday end of trading

–Gaalen Engen

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Robin Tymkin

what an fool you are Gaalen. recommending should be enough to have any investor steer clear of you advice columns. surprised you didn’t put a plug in for Nikola…lmao.
Another Tesla hater…who didn’t invest. So easy to spot.
How’s it feel knowing you missed the boat entirely?

Robin Tymkin

I meant You Recommending “Lordstown” ^^ ….you know the same company who lied about their reservation orders and were forced to sell their refurbished manufacturing plant that they purchased from GM to Taiwanese interests? LMAO …and you tout them over
a company like TESLA that has lead the entire EV adoption-and will produce 1Million EV this year
and 50% growth projected year over year for the next 5yr cycle.