Rivian and other EV startups are battling a variety of issues as they try to carve out a market share. It’s a difficult time to be a startup. Newcomers to the electric vehicle industry face a number of obstacles, including out-of-control inflation, supply chain delays, and Russia’s invasion of Ukraine.
Rivian Automotive (RIVN) is apparently postponing delivery of its long-awaited SUV, the R1S, by one to nine months.
Getting a Glimpse of a Tight Supply Chain
Rivian did not immediately respond to a request for comment, but the business claimed in a statement to clients on RivianForums that “we’ve continued to navigate a tight supply chain, we’ve had to reduce complexity wherever possible, including prioritizing certain build combinations over others.”
“We continue to prioritize deliveries in locations where service infrastructure is in place so that we can provide the full ownership experience to Rivian owners from day one,” Rivian said.
One buyer stated, “My R1S Launch Edition moved from April-May 2022 to August-September 2022.” “Not as bad as I was expecting.”
“Was July-Sept now Oct December – groundhog day in these delay emails but falling into the trap thinking OK… This is a legit final delay,” another poster remarked, alluding to the 1993 Bill Murray film.
Ford (F) announced last month that it sold Rivian stock in a Securities and Exchange Commission filing, a move that was perceived as a setback to the fledgling electric car producer
Obstacles on the road
According to the statement dated May 10, Ford, which owned 102 million Rivian shares, sold 8 million of them on May 9.
DA Davidson analyst Michael Shlisky commenced coverage on Rivian earlier this month with an underperform rating and a $24 price target.
While the company’s electric pickup truck and SUV cars are more expensive than conventional mass-market models, Shlisky wrote in a research note that the “high-performance and feature-rich vehicles may be able to justify the premium cost.”
Shlisky said he “liked” the truck he examined, but he is concerned that bad stories would outnumber favorable news in the coming months.
“There have been bumps in the road,” he noted, as with most electric vehicle startups.
Rivian CEO RJ Scaringe wrote to shareholders in a June 6 regulatory filing, saying that “since raising $13.7 billion of gross proceeds in our IPO last November, the capital markets have changed dramatically.”
‘Our Roadmap Has Been Focused’
“We have focused our roadmap to ensure that the $17 billion of cash we had on our balance sheet as of March 31, 2022, can support the 2025 launch and ramp of our R2 vehicle platform,” he stated.
Amazon (AMZN) is another key shareholder in Rivian, in addition to Ford.
“Our strong partnership with Amazon and its initial order of 100,000 vehicles enables us to work with one of the most sophisticated fleets in the world to demonstrate how electrification and connectivity fundamentally improve the operating costs for commercial fleets,” Scaringe wrote in his letter.
“On the consumer side,” he said, “the R1T and R1S establish the brand and lay the foundation for us to grow and expand our portfolio globally across different price points and form factors, the first of which will be our R2 platform.”
“The journey ahead won’t be easy,” Scaringe told shareholders, and other EV businesses are presumably feeling the same way.
GOEV (Canoo)Another EV start-up, has warned that it may run out of money in the next months, noting that “there is substantial doubt about the company’s ability to continue as a going concern.”
Recently, Electric Last Mile Solutions (ELMS) filed for bankruptcy, claiming that “there were too many difficulties for us to overcome.”
Is there any reason to believe that electric vehicle start-ups are on the verge of extinction? Professor of business and sustainability at Cardiff University, Peter Wells, disagrees.
“The automobile industry has historically been a difficult terrain for new entrants to fight against existing firms’ established advantages of large economies of scale, strong brand awareness, and sophisticated supply chain and distribution networks,” he said.
“The industry has been continuing a trend of the worldwide growth of markets and, in parallel, consolidation of ownership – albeit facilitated by governments” prior to the introduction of EV technology, Wells continued.
Is There an Exception to the Rule?
“Tesla (TSLA) has managed to break this tendency, according to Wells, “but it risks becoming the exception that proves the norm.”
“The automotive industry has long been a difficult territory for new entrants to compete against the established advantages of the incumbent majors able to deploy vast economies of scale, strong brand recognition, and mature supply chain and distribution structures”
“The established incumbents have, to varying degrees, turned their considerable corporate resources to bringing EVs to market in scale,” Wells noted.
“Hence the window of opportunity for companies to leverage the EV moment seems to be closing pretty fast,” he said. “It is not over for sure…. However, I anticipate that new entrants will increasingly need ‘tech’ company backing with resources and technologies and different ways of reaching customers.”
China State-Owned Giants May Delist From US Exchanges
Five of China’s largest state-owned corporations want to delist from US exchanges as the two countries struggle to agree on auditing Chinese businesses.
China Life Insurance Co., PetroChina Co., and China Petroleum & Chemical Corp. announced their delisting intentions Friday, together with Aluminum Corp. of China and Sinopec Shanghai Petrochemical Co.
The US and China have been at conflict for 20 years over American inspectors’ access to Chinese company audit work files. Negotiators haven’t reached a deal despite a 2024 deadline to shut down noncompliant enterprises. Mainland China and Hong Kong are the only two jurisdictions that don’t allow PCAOB inspections, citing security and confidentiality concerns.
As US and Chinese officials struggle to achieve a settlement, speculation mounts that sensitive Chinese companies could leave US markets willingly.
“These state-owned firms are in vital areas and may have access to information foreign regulators don’t,” said Saxo Markets strategist Redmond Wong.
The China Securities Regulatory Commission said the delisting plans were business-related.
Bloomberg Intelligence projected in May that 300 Chinese and Hong Kong companies worth $2.4 trillion risk being removed off US exchanges as the SEC raises scrutiny. China Life, PetroChina, China Petroleum & Chemical, Alibaba Group Holding Ltd., and Baidu Inc.
Uncertain if delisting will improve discussions on audit inspections, a US regulatory requirement aimed to safeguard investors from accounting frauds and other financial wrongdoing. The 2024 deadline comes from a popular 2020 bill, the Holding Foreign Companies Accountable Act.
PCAOB Chair Erica Williams said a voluntarily delisting may not stop the board from reviewing audit work papers. The PCAOB’s jurisdiction to investigate was retrospective, so the watchdog could still require work files from departing corporations, Williams noted.
If a corporation or issuer delists this year, it doesn’t matter to Williams because he wants to know if they committed fraud last year.
Alibaba joined a growing list of corporations that could be booted off American exchanges on July 29.
Alibaba stated in July it was seeking a Hong Kong main listing, joining Bilibili and Zai Lab. The switch might help corporations attract more Chinese investors and provide a model for US-listed Chinese enterprises facing delisting.
Alibaba stated in August it would aim to keep its NYSE and HKE listings.
Alibaba, Pinduoduo, JD.com, China Life, and Sinopec sank 3% in US pre-market trade. PetroChina lost 1% and Kraneshares CSI China Internet Fund ETF sank 1.8%.
China considers eight companies listed on major US exchanges to be “national-level Chinese state-owned enterprises,” according to a congressional investigation. China Southern Airlines Co., Huaneng Power International Inc., Aluminum Corp. of China, China Eastern Airlines Corp., and Sinopec Shanghai Petrochemical.
Delistings will have little impact on the companies because their New York shares are thinly traded, but they highlight rising US-China tensions, said Bloomberg Intelligence strategist Marvin Chen.
Relations between the superpowers have been tight following Nancy Pelosi’s trip to Taiwan provoked Chinese military drills near the island.
Congress may speed up the delisting deadline to 2023, adding pressure for the two parties to achieve a compromise.
The PCAOB chair declined to set a deadline for reaching a deal with Chinese officials, but said it must be soon.
China Mobile Ltd., China Telecom Corp., and China Unicom Hong Kong Ltd. were delisted from the New York Stock Exchange in January 2018 after President Trump banned investment in Chinese enterprises with military ties. Huaneng Power International plans to delist owing to poor volume and administrative complexity and costs.
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Tesla Stock Rises As Elon Musk Sells $6.9 Billion Worth of Shares
“It is crucial to avoid an emergency sale of Tesla stock,” Musk wrote, “in the event that Twitter compels this deal to close, which is hopefully improbable, and certain equity partners don’t come through.”
The announcement that Tesla (TSLA) CEO Elon Musk had sold approximately $7 billion worth of stock in order to set aside cash for his contentious purchase of Twitter caused the company’s shares to rise on Wednesday (TWTR).
According to documents filed with the Securities and Exchange Commission, Musk sold 7.92 million shares between August 5 and August 9, resulting in a profit of around $6.9 billion. After sales of approximately 8.5 billion in early April, he still controls approximately 155 million shares of the clean energy carmaker, which accounts for 15% of the company.
Musk claimed that he wanted to avoid a “emergency sale” of Tesla stock in the event that “Twitter forces this deal to close *and* some equity partners don’t come through” on the $44 billion transaction. He took advantage of a 47% rally in Tesla shares between late May and August 5, when the first sale was made, in order to accomplish this goal.
He also stated that he would repurchase the stock in the event that the Twitter deal, which is scheduled to be heard by a judge from the Delaware court system in the middle of October, is finally unsuccessful.
During the late morning session of trading on Wednesday, Tesla shares were marked 2% higher to reach a price of $868.20 a share. In the meantime, Twitter shares increased by 3.4% to $44.30 per share.
Since the beginning of July, Musk has been in a public dispute with Twitter regarding the number of accounts on the social media platform that are referred to as “fake” or “bots.” Musk believes that these accounts constitute a material change to the terms of the merger that he agreed to in the spring.
Twitter, for its part, is suing Musk to force him to purchase the group for $44 billion, or $54.20 per share. In court papers published last week, Twitter argued that the idea of a “billionaire founder of multiple companies, advised by Wall Street bankers and lawyers” being “hoodwinked into signing a $44 billion merger agreement” is “as implausible and contrary to fact as it sounds.” Twitter is suing Musk to force him to purchase the group for $44 billion.
Twitter was forced to manage a slowdown in worldwide ad spending and the uncertainty tied to Musk’s disputed takeover, which resulted in the company posting an unexpected loss for the second quarter late last month.
The company stated that this was due to “headwinds in the advertising industry associated with the macroenvironment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk.” Group revenues decreased by 1% to $1.14 billion, again falling short of the Street forecast of a $1.315 billion tally. Twitter said that this was because of “uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk.”
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New Tax Credit Affects Top-Selling EVs
In a win for Democrats, the Inflation Reduction Act passed the Senate and will likely pass the House. If all goes as planned, President Biden might sign the bill in two weeks.
For the auto sector, the proposal expands the $7,500 federal tax credit for EVs by removing the 200,000-vehicle cap.
While it sounds excellent for automakers, new requirements mean 70% of EVs and PHEVs won’t qualify for the credit.
72 EV models are currently available in the U.S., including battery, plug-in hybrid, and fuel cell electric vehicles, says John Bozzella, CEO of the Alliance for Automotive Innovation, a trade group that includes GM, Toyota, and Ford. 70% of EVs would be disqualified when the measure passes, and none would qualify for the entire credit when further sourcing restrictions take effect. Zero.”
These changes will make EV tax incentives more restrictive:
North America must finish assembly.
Car MSRP must be below $55,000, and trucks and SUVs below $80,000.
The U.S. or free-trade partners must supply battery materials by 2024.
In less than two years, the last battery sourcing component will mean no EVs qualify for the credit, says Bozzella. The plan imposes consumer income criteria that will make many high-earning Americans and joint filers ineligible for tax advantages.
The Automotive Alliance for Innovation lists all zero-emission EVs and PHEVs on sale in America, as well as EV and battery producers.
Yahoo Finance has verified how the top 5 EVs and PHEVs in America will fare under the new guidelines.
Models 3 and Y
Following enactment, both U.S.-made Model 3 cars and Model Y SUVs, the best selling EVs in America, would qualify for the tax credit, a benefit for Tesla given the credit is currently being phased out. Registration data is used as a proxy for Tesla Model 3 and Model Y sales.
Only the $46,990 Model 3 RWD qualifies. Assuming the Model Y is an SUV, both versions qualify (Long Range – $65,990; Performance – $69,990).
Ford Mustang Mach-E finished second in EV/PHEV sales last quarter with 10,941 units. The $43,895 base Mach-E might qualify as a vehicle or SUV, and because it’s produced in Mexico, it would qualify for the tax credit.
Last quarter, 10,861 Wrangler 4xE plug-in hybrids were sold. With a starting MSRP of $54,595, it would qualify for the tax credit because it’s built at Jeep’s Toledo, Ohio plant.
Kia EV6 and Hyundai IONIQ5
The all-electric Hyundai IONIQ 5 sold 7,448 units in the second quarter, and Kia’s EV6 EV sold 7,287. The IONIQ 5 and Kia EV 6 are constructed in South Korea, so they don’t qualify for the tax credit. This is a hit for Hyundai as the IONIQ 5 and EV6 have been hailed by reviewers and start at $39,950 and $33,900 respectively. The affordable MSRPs may still make both feasible options for many Americans despite loss of the credit.
GM’s Bolt EV and Bolt EUV sold 6,945 units last quarter. With a starting price of $25,600, it’s the cheapest pure electric vehicle on the market, and final assembly will take place at GM’s Orion factory in Michigan.
Audi e-tron, Polestar 2
Popular cars including the Audi e-tron, Lucid Air, Polestar 2 sedan, and Porsche Taycan that currently qualify for the federal tax credit will not if the bill is enacted into law.
Manufacturers may no longer need incentives, so all is not lost.
Sam Fiorani, Vice President of Global Vehicle Forecasting at AutoForecast Solutions, told Yahoo Finance, “By the time vehicle makers can take full credit for the legislation, the market will be ready to accept electric vehicles and the incentives will no longer be necessary.” Without incentives, the buyer’s pricing won’t alter much. These incentives boost prices and boost manufacturing profits.
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