EV Pretenders List Review - Electric Last Mile Solutions

Deuteronomy Chapter 6 verses 4-5 state, "Hear, O Israel: the Lord you God, the Lord is one. Love the Lord your God with all your heart and with all your soul and with all your strength."

I tend to think about this verse and ask myself, how do I know that I am fulfilling it? The best way I know that I am giving God my hear and soul and strength is whether I am hungry for His word. The more I proactively seek the Lord, the more hungry I am each day, versus other things that I need or have time to choose to do.

At the same time for investing, I find that conviction is key. For the EV Revolution, my conviction is strong in the companies I own. But this conviction goes beyond simply considering that I will end up correct. It has translated into a deconstructive approach to monitoring the automotive and transportation service industries in order to best monitor all of the progress on a quarterly basis. This will help create accountability for the many companies touting their EV ambitions, and successful expectations.

I like the massive investment opportunity afoot for the transition to electric vehicles, EVs. However, I firmly believe that there are three classifications of companies vying for a piece of the pie today:

  • -EV Vertically Integrated Leaders (Tesla, Lucid, Rivian)

  • Traditional Automotive OEMs (Ford, GM, others)

  • De-SPACed EV Pretenders (Fisker, Lordstown, others)

I also firmly believe that the EV Vertically Integrated Leaders will come out on top over the mid- and long-term. While Traditional Automotive OEMs will find their footing somewhere in the middle (not all of them though), and De-SPACed EV Pretenders will mostly end up bankrupt. It is to this latter point that I wanted to provide a peek behind the paywall for how I am tracking these classifications, with some commentary on Electric Last Mile Solutions (ELMS).

The table below provides the current list of EV Pretenders. It isn't complete yet, but it's getting close. It includes both clear EV Pretenders (de-SPACed companies) but also includes Traditional Automotive OEMs as I believe that there will be some of these companies that won't make it as well.

I've also taken the liberty of adding other companies whether rental car, transportation network company, TNC, etc., to encompass a comprehensive perspective.

Now on to Electric Last Mile Solutions, or ELMS for short. I'll be quite candid here, the fact that ELMS has been created out of China creates an immediate red flag. Don't get me wrong, I fully believe that people within China are fully capable of creating some of the most innovative businesses in the world. But with the Chinese government controlling things, there is no single company in the country today that is legitimate.

Back in the 2006-2011 time frame, there was a massive amount of capital that was raised by Chinese companies taking advantage of U.S. investors. This culminated in a substantial amount of bankruptcies and delistings. More recently, Ryder, Inc. (R) and FedEx Corporation (FDX) were taken advantage of by another Chinese company, Chanje, Inc. for the development of EVs that has ended up in cancelled contracts and lawsuits.

The second major red flag for ELMS is their estimated growth trajectory. While Tesla, Inc. (TSLA) is the bonafide EV leader approaching 1 million EV deliveries, companies like Lucid Group, Inc. (LCID) and Rivian Automotive, Inc. (RIVN) are also looking to ramp up quickly over the mid-term approaching $25-$35 billion in Revenue. For ELMS, the company is looking to trek towards $3.7 billion. While growing from nothing to just below $4 billion may seem like a great growth trajectory and investment opportunity, it pales in comparison to Tesla's success and the ambitions of EV companies like Lucid and Rivian which are going for it all.

This is a reoccurring issue for many de-SPACed EV Pretenders and other newer IPOs in general. It is very rare for a new market entrant to succeed if they are not capable of scaling quickly and sustaining a robust growth trajectory. I don't believe today that ELMS will come anywhere near their mid-term estimates, but even if they did, I doubt there would be much upside over the long-term.

Today, the Stock Price, SP dropped by over 50% on the announced news yesterday that Shauna McIntyre, a member of the Company’s Board of Directors, has been appointed as Interim Chief Executive Officer and President, succeeding James Taylor, who has resigned from his role as Chief Executive Officer and a member of the Board. In addition, Brian Krzanich has been appointed Non-Executive Chairman of the Board, replacing Jason Luo, who has also resigned from his position as Executive Chairman of the Board. The departures follow an investigation conducted by a Special Committee of the Board of Directors (the “Special Committee”).

This is clearly an issue from management's credibility. I see the SPAC EV craze similar to the Chinese debacle in the 2011/2012 years, with the SPAC craze being fueled by rosy five-year estimates. Aside from this clear highly negative result of the management shake-up, ELMS is in a typical financial position where it is unlikely that the company will be capable of avoiding bankruptcy.

As of Q3 2021, ELMS had Net Cash of $87 million, $193 million in Property, Plant, & Equipment, PPE, and had burned around $70 million in Cash through the first nine months of 2021. With the SP now below $3 and continued pressure with management's shake-up, I don't see ELMS being in any position to raise more capital as they will likely run out in 2022.

This is a similar scenario likely to play for Lordstown Motors (RIDE), as they have gone through a similar management shake-up, sold their most important asset in their previously purchased plant from GM, and only been able to enter into capital raises through the plant sale and a shady hedge fund that may never come to fruition.

Today's investment world is changing and there's a lot to be paying attention to for investors. The EV Revolution is going to offer a massive investment opportunity, but it isn't going to play out for many companies. I've determined who I believe those winners will be in Lucid and Rivian and I will continue to monitor and track all the progress within this exciting industry.

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