EV Startups Fighting Uphill Battle Against Tesla

While Tesla, Inc. (TSLA), wowed investors by breaking $300 per share, it may be the leading anomaly for the cleantech and alt energy stock market.

Reaching $53 billion in market valuation, the electric carmaker surpassed Ford Motor Co. (F) in value – even though the company has yet to earn a quarterly profit. Some analysts think it has much to do with a cult of personality around charismatic CEO Elon Musk; and with the quality and performance of its Model S sedan and Model X SUV, bolstered by the company taking about 400,000 down payments when revealing its Model 3 electric car last year.

Leading solar power company SolarCity had been doing well not that long ago in stock market performance, but started seeing its stock value plummet last year. The company was facing a few serious hurdles, which resulted in Tesla acquiring SolarCity late last year. That meant SolarCity stock was no longer listed in NASDAQ market quotes.

If you take a visit to Alternative Energy Stocks, you’ll find stock market performance on every aspect of cleantech and alt energy imaginable. That covers wind, solar, geothermal, biofuel, battery, energy efficiency, smart grid, and alternative transport, among others.

But try and find a company with market valuation anywhere near Tesla’s. Some companies in the listing are only divisions of much larger corporations, so the market cap could be misleading. AeroVironment, Inc. (AVAV) is a good example. While it plays a leading role in bringing electric vehicle charging stations to the U.S., that part of the company pales in comparison to AeroVironment’s role in aerospace.

The recent history of the cleantech and alt energy sectors reveal more about what’s working better these days for startups than IPOs and daily trading.

While renewable energy companies and electric car startups were hot commodities with venture capital firms 10 years ago, that changed drastically. Some of that was moved by the great recession starting in 2008, with investors pulling away and backing Silicon Valley tech firms and mobile application startups.

Department of Energy grants from the Obama administration helped a few major automakers and Tesla launch their first electric vehicles, but some of that went down in flames. Plug-in hybrid sports carmaker Fisker Automotive and lithium battery company A123 Systems became targets for criticism after filing for bankruptcy and not being able to pay back DOE funds. Mitt Romney attacked that debacle during his 2012 campaign and threw a few other companies into his pot, including Tesla.

Chinese capital has filled some of the void. Fisker and A123 were bought out by Wanxiang Group, a leading Chinese auto supplier. Both companies have been rejuvenated under new identities, with Karma Automotive now tapping into the platform originally created for the Fisker Karma; and A123 is still making batteries, but no longer for electric vehicles.

The Chinese government has made generous subsidies available through its “new energy vehicle” campaign. That has spurred sales dramatically, making China the leading global market for electric car sales. Carmakers from the U.S. and Europe are entering that market full scale, competing with Chinese automakers and joint ventures between Chinese state-owned vehicle manufacturers and major global automakers such as General Motors.

Some of those investors see startups, which are breaking into the U.S. electric car market, attractive to invest in. Some are facing hardship, including Faraday Future and its electric “supercar” that’s yet to be built. That U.S.-based startup is owned by LeEco and Chinese tech entrepreneur, Jia Yueting. LeEco has faced its own set of financial problems and doesn’t seem to have much financial support to offer Faraday Future at this time.

Lucid Motors is looking for $700 million to establish its Arizona factory and build the “Air” electric luxury sedan. The startup claims Lucid Air will be able to travel 400 miles on a single charge, powered by two AC induction motors capable of producing 1,000 in combined horsepower.

While the company has yet to launch an IPO, Lucid has made its way forward through private equity investors; with Chinese internet giant LeEco being one of them. The startup is working on a Series D financing round. Once that funding is secured, ground will be broke on its production plant. It will carry out the process gradually in three phases, with the first part needing $240 million in backing.

Those interested can study cleantech stock performance, namely the Dow Jones Sustainability Index and the Cleantech Index.

It’s typical to find that many publicly traded companies in cleantech and alt energy are small in market valuation, well under $1 billion. Large companies like Tesla tend to take a broad approach to finding enough capital to make it in these competitive, technologically complex global marketplaces.

Tesla has tapped into everything you can think of, including a Department of Energy loan that it paid back early. The stock market presence is strong, and CEO Elon Musk continues to be the largest shareholder in the company.

Musk would also be the first to admit that Tesla could likely have disappeared if it weren’t for significant investments made by global automakers Daimler and Toyota in 2009 and 2010. Both of these companies have sold their shares in Tesla for excellent profits, and tapped into Tesla’s electric drive system for some of their first steps into electric vehicles.

Now they compete aggressively against Tesla, especially Daimler and its soon-to-be-launched luxury electric cars.

By Jon LeSage for Oilprice.com