Mobility start-ups are on collision course with the new economic reality of slow growth, high inflation and soaring interest rates, with several investors’ darlings now facing dire straits and venture capital (VC) investors sitting on the fence.
Notable examples include UK-based battery firm Britishvolt, which ran out of cash in late October; electric truck company Nikola, whose founder Trevor Milton was convicted of fraud in mid-October for misleading investors; Ford- and Volkswagen-backed driverless start-up Argo, which is now shutting down; and the Silk Sports Car Company, a mysterious Sino-US joint venture (JV) whose plans to develop a luxury electric car in Italy are currently marred with uncertainty.
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Their troubles are a wake-up call for an industry that up until a few months ago had thrived on easy access to capital and large political backing, and is now facing a very different outlook.
Not everyone can be a success
“Companies have come in with good intentions, but as you get further down the development pathway, it becomes clear that not every start-up can be successful,” says Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, referring to batteries for electric vehicles (EVs). “This is a high-capital, low-margin business.”
The case of Britishvolt “highlights the challenges in setting up cell production from scratch and the vast amounts of capital required”, he adds. The company ran out of cash in the late October while developing a £3.8bn, 30 gigawatt hour (GWh) gigafactory in Blyth, England, prompting commodities trade firm Glencore to extend it a financial lifeline until December.
Benchmark Mineral Intelligence predicts that European gigafactory capacity will grow from 71GWh in 2022 to 1.2 terawatt hours in 2031. However, “not all of this is going to make it to production”, Mr Rawles cautions.
Not all of this [planned gigafactory investment] is going to make it to production
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Anna-Marie Baisden, head of autos and infrastructure research at Fitch Solutions, believes battery start-ups will be more adversely affected by a macroeconomic environment with rising inflation and energy prices.
“Costs are rising everywhere and if these companies don’t have enough money to start with, then that’s really going to hurt them, while legacy manufacturers will be in a better position,” she says.
Even Europe’s darling battery start-up Northvolt, which has raised more than €7bn in funding and secured offtake agreements, is not immune to rising prices. Amid media reports that it is considering delaying the start date of its third gigafactory in Heide, Germany, a company spokesperson tells fDi that “current energy prices are an obvious challenge, but we’re working with all stakeholders to find solutions.”
Current energy prices are an obvious challenge, but we’re working with all stakeholders to find solutions
Energy usage can account for between 40% and 50% of production costs of lithium-ion batteries. European electricity prices have been on a rollercoaster since the beginning of the year.
Deflating bubbles
In the current market environment, VC investors “are sitting on the sidelines for the time being”, reads the latest mobility tech report published by PitchBook on November 4. Mobility tech raised $5.5bn in VC funding in the third quarter of 2022, representing a 79.2% drop from the same period of last year, and stands 63.2% below the five-year average for mobility tech startups.
“Many startups have been beset by production issues as they attempt to scale manufacturing,” the report reads. “Supply chain problems with chips and other critical components have further complicated efforts. For those that were able to go public recently, the current risk-off posture among investors has not been kind.”
Nikola stands out among the publicly traded mobility tech start-ups that took a beating this year. Its stock price has shaved nearly 70% since the beginning of the year as Mr Milton, its founder and former CEO, was convicted of fraud for misleading investors over the company’s hydrogen technology.
Other would-be EV ventures risk being derailed by insecure funding. The Silk Sports Car Company, a Sino–US €1bn JV between Silk EV and Chinese auto giant FAW to produce electric sports cars in the ‘Motor Valley’ in Emilia Romagna, Italy, has been marred with uncertainty over the course of this year.
Vincenzo Colla, head of economic development in the Emilia Romagna regional government, says that despite recent commitments made in October on both sides of the JV, “if the finances aren’t there, the project risks being shut down completely.”
Meanwhile, in the autonomous driving sector, the demise of Argo is yet another example that the “driverless car bubble is deflating”, says Jack Stilgoe, professor of science and technology policy at University College London.
“There was a superficial story of innovation in autonomous vehicles where the winner of the race to develop the technology will secure a monopoly or profits. Cars just don’t work like other tech,” he says, adding that the use of driverless cars will inevitably vary from place to place, making scaling up difficult.
In an earnings call for the third quarter of this year on October 26, Ford’s CEO, Jim Farley, said that it will be “a very long road” to get to a self-driving car fully operational, adding that “no one has defined a profitable business model at scale”.