By Joseph White and Ben Klayman
DETROIT (Reuters) – Electric vehicle startups that promised to disrupt the automotive industry by using a software- and technology-heavy approach are now scrambling to cut costs amid the type of industry slowdown that has bedeviled Detroit automakers over the years.
To remain a player in an increasingly competitive business as incumbent automakers introduce their own EVs, startups like Rivian Automotive Inc and Arrival SA will need to tighten their belts and in some cases reinvent themselves, industry officials and analysts said.
In many cases, they are partnering with larger, deep-pocketed companies to aid their survival and provide access to funds.
Those who fail to control their spending or find the right partners could wind up like electric delivery van startup Electric Last Mile Solutions, which filed for Chapter 7 bankruptcy protection last month. Industry officials do not expect that to be the last startup to hit a pothole.
“Like every company that is burning money, you need to make the right adjustments so that you can get to the other side of the desert,” said Evangelos Simoudis, a Silicon Valley venture capital investor and industry adviser.
Even as overall new-vehicle sales have slumped during the COVID-19 pandemic, EV demand remains strong. Global sales of battery electric and plug-in hybrid electric vehicles nearly doubled last year to 6.6 million, according to the International Energy Agency.
On Tuesday, British startup Arrival said it planned to cut spending, reorganize its business and potentially shed 30% of its workforce in response to the challenging economic environment.
Arrival, trying to launch production of electric delivery vans, is following the lead of industry stars Tesla Inc and Rivian, which have cut jobs as supply-chain snarls hobbled production, holding revenue below expectations and sending costs soaring.
Arrival said its $500 million in cash on hand would last until late 2023 with the proposed cuts. The question is whether that will be enough.
“One billion dollars doesn’t last very long in the auto business. That’s a redesign for a Malibu or something,” Cox Automotive executive analyst Michelle Krebs said.
NO MORE ‘FREE MONEY’
Partnerships or long-term contracts with financially strong companies are one lifeline for EV startups.
Stellantis CEO Carlos Tavares said on Wednesday that rising inflation is cutting off easy access to “free money.”
“This means some startups will have a little bit more difficulty to develop by themselves,” he said during an awards presentation to startups with whom the carmaker works.
Rivian not only has a large deal to supply vans to Amazon.com Inc, but the online giant also is a major investor.
Rivian Chief Executive R.J. Scaringe told employees on Tuesday that job cuts were coming in order for the company “to stay ahead of the changing economic landscape.”
Lordstown Motors Corp, an Ohio startup that briefly had a larger market value than Ford Motor Co, has restructured, selling assets to and partnering with Taiwanese contract manufacturer Foxconn.
‘INCREDIBLY TOUGH BUSINESS’
The staff cuts and restructuring in the new EV industry reflect challenges common to all automakers, and some that are unique to small companies in a capital-intensive industry where even global economies of scale sometimes are not enough to assure profitability.
When Tesla CEO Elon Musk last month told top executives in his company in an email that he had a “super bad feeling” about the economy, and said the world’s most valuable automaker needed to cut its salaried staff by 10%, he was amplifying concern about the global economy other CEOs shared.
“This is an incredibly tough business,” said Barry Engle, a former auto executive who started a special-purpose acquisition company that merged with air taxi startup Lilium. “With the success of Tesla, it’s easy to forget that was a story that was 20 years in the making and along the way there were many points where they stared death in the face.”
In Tesla’s case, economic turbulence struck as the company was launching large assembly plants in Texas and Germany. Supply- chain bottlenecks had turned those operations into “money furnaces,” Musk told members of a Tesla fan club last month.
DETROIT NOT IMMUNE
Detroit automakers are at risk too from rising money costs and persistent supply-chain problems.
At General Motors Co, executives look at a dashboard of market indicators “every day, every week, every month,” Chief Financial Officer Paul Jacobson told investors at Deutsche Bank conference in June. “I don’t want to end up in a situation where we walk off a cliff.”
So far, established automakers have been able to raise prices on their popular, high-volume combustion trucks and SUVs to keep cash flowing. GM, Ford and Stellantis have so far stuck to their full-year profit forecasts.
EV startups do not have established model lines churning out cash the way the Ford F-series truck lineup does. The slumping stock market and rising interest rates have made it tougher for new companies to raise fresh capital from investors. That intensifies pressure to start building and selling vehicles, and to slash expenses to conserve cash on hand.
Canoo Inc shares got recharged on Tuesday when the company said it had landed the deal to deliver 4,500 delivery vans to retailer Walmart.
Canoo shares rose more than 50%, although from a low base. The company told investors in May its management had “substantial doubt” about the company’s ability to remain a going concern.
(Reporting by Joseph White and Ben Klayman in Detroit; Additional reporting by Nick Carey in London; Editing by Matthew Lewis)
Source: One America News Network
