During 2020 and 2021, a number of electric vehicle startups went public through deals with Special Purpose Acquisition Companies (SPACs), raising vast amounts of money in the process. However, many of those companies are now in dire need of additional funding.
Recently, Canoo issued a warning to shareholders that its future is a “going concern” and that it had cash reserves of just $104.9 million on March 31. That is a far cry from the $600 million that it raised by going public and leaves it with less money than it had in the quarter before its merger in December 2020.
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To keep afloat, Canoo says it has secured an additional $300 million in funding from existing shareholders and an equity purchase agreement with Yorkville Advisors. However, Bloomberg says it needs a lot more money than that, suggesting Canoo could burn through $1.1 billion this year and through 2023.
It is a similar story at Lordstown Motors. It generated approximately $675 million by going public during the SPAC bubble but recently had to delay plans for its Endurance pickup truck. What’s more, it was also forced to sell its Ohio factory to Foxconn for $230 million in a bid to stay alive and recently revealed it is seeking a further $150 million in funding. This comes despite the fact that it reached a deal with Yorkville Advisors in 2021 to sell up to $400 million worth of stock.
“The story has changed,” Bloomberg analyst Joel Levington says. “These companies are burning huge amounts of cash. Every day that the market goes down their liquidity gets more challenged.”
Levington states that the convertible debt being used by these startups is costing more than 10 percent as they can’t issue significant amounts of secured debt because they lack hard assets to use as collateral.
Fisker is in a slightly better position to some of its competitors. It too went public through a SPAC merger last year, generating $1 billion in funding. Importantly, it also added $625 million to its war chest last August by offering converting notes at a time when rates were much lower. It has enough money to bring the Ocean SUV to the market but speaking on Fisker’s recent earnings call, chief financial officer Geeta Gupta-Fisker said it will need to raise more money.