Just saw the article about Lucid’s earnings/sales/etc and it seems its generally agreed upon that they’re currently floundering big time due to the very high market price and not a ton of buyers. This reminded me of something I was thinking of the other day, which is that the EV car manufacturing sector seems to be replicating in a way that we saw car manufacturing do around their inception in the early and then into the mid 20th century when you had dozens of manufacturers popping up each trying to tap into a relatively specific market. You have a lot of new companies that have somewhat niche vehicles in an already niche market (Lucid for high end luxury, Rivian for trucks, etc) but I’m curious of others opinions as to if this is a good thing or not. Will these more niche brands go the route of previous niche brands and be bought up by the Big 3 or international producers? Or will this completely revolutionize the car market where you have highly specialized brands making their version of the vehicle’s best (the best sports car EV, SUV EV, truck EV, etc) and then general producers like the Big 3 end up eating it because they simply can’t keep up because they’re stretched too broadly?
We’re coming out of an EV bubble where liquidity in the market was high, interest rates were at record lows so borrowing (for both businesses and consumers) was extremely cheap, and EVs had reached a point where they were competitive and were on-trend.
Combined with a strong Chinese government investment in EVs (followed by strong US and European investment) it effectively made it impossible to propose a model that didn’t get a lot of interest, or start a company that did get heavily scrutinised - if anyone was willing to build it, it seemed like someone would be willing to buy it.
Then the bubble started collapsing, people realised actually I do have a set of needs and wants in a car beyond a number for the battery and another for the power output, and they’re starting to look around at all the competitive offerings. They’re also scrutinising their options more critically as purse strings tighten and people start to wonder if they really need that new car or to spend that much - or even if the bank will let them with high (and increasing) interest rates investors in turn are losing their risk appetite as debt costs soar, and are again scrutinising a lot of these junk companies more heavily.
It’s quite similar to the Japanese bubble era cars of the 80’s/90’s - lots of cool stuff, and manufacturers were just throwing everything out there, brands created sub-brands, practically everything sold - then the bubble popped, suddenly the market shifted, and manufacturers that couldn’t flex or weren’t willing to suddenly found themselves with entire product lines that they couldn’t shift. Cars that seemed like a great idea at the time had a more scrutinising public asking “wait… why would I choose to buy that again?”
I think we’ll see most of the startups go under, and those that don’t won’t reach the sky-high expectations that were being bandied about as recently as 6 months ago. They’ll be succesful, but with long generational gaps and an industry built on flexible production, it’s much better prepared to change and adapt than (to quote an often mis-used analogy) the smartphone market.
A recurring theme is that a lot of these startups have patents that are “more valuable than originally thought” - which may be true, but that doesn’t mean much if the company goes under and the rights to those patents get liquidated, or if the company has to license them for cents on the dollar to keep the lights on. The car designs themselves have a shelf-life, and there’s little of value that they bring - unless they can prove their technology is able to be applied to deliver a strong USP, they’ll probably just die a slow death, ending in bankruptcy, liquidation, or absorption into a larger company as you said. China is ripe for consolidation of the car market, and the US certainly will have a cull of startups at some point (and is currently happening, with Lordstown restructuring after bankruptcy (but still far from having a mass produced product), Mullen continuing to die a slow death, Canoo looking at heavy dilution so that they can keep paying fees and rent to their CEO’s other company, etc).