Electric carmakers seek out blank-check firms for funding as virus spooks private markets

Electric commercial truck maker Nikola Corp NKLA.O of Phoenix, Arizona, tried unsuccessfully to raise $1 billion (766 million pounds) in the private markets and only turned to a merger with a so-called blank-check company to go public as a way to raise the...


Electric commercial truck maker Nikola Corp NKLA.O of Phoenix, Arizona, tried unsuccessfully to raise $1 billion (766 million pounds) in the private markets and only turned to a merger with a so-called blank-check company to go public as a way to raise the needed funds, its chief financial officer said.

Nikola quickly raised a $250 million commitment from lead investor CNH International last summer, but market concerns about inflated valuations for some companies led the startup to consider an initial public offering before VectoIQ Acquisition Corp approached in late November, Kim Brady told Reuters this week.

A deal with the special purpose acquisition company, or SPAC, became a reality when it was able to arrange an additional $525 million from institutional investors like Fidelity Management & Research Company upon the closing of the $240 million acquisition, allowing Nikola to achieve its fundraising goal, he said in a telephone interview.

A SPAC is a shell company that raises money through an IPO to buy an operating company, typically within two years.

Nikola’s SPAC merger has been a catalyst for the industry as electric carmakers and other auto technology startups scramble to lock in the necessary funds to survive and develop their vehicles even as global demand for EVs slowly grows, according to interviews with 20 industry officials.

“When we embarked on our Series D (fundraising round) we didn’t think a year later we’d be a public company, but based on the market conditions we pivoted,” Brady said. “It worked out perfectly for us. We ended up at exactly the same place.”

Nikola previously had eyed an IPO in late 2021 or even 2022, and if not for the SPAC deal it would likely still be private and slowing product development plans to conserve cash given the freeze in the capital markets caused by the coronavirus pandemic, Brady said.
Nikola’s success - shares are up more than 320% since the deal was announced - has emboldened other startups to consider a SPAC merger to raise much-needed cash as public market investors chase Tesla-like returns. However, the trend also worries industry executives that some of these deals could fail, casting a pall over the sector.

SPACs TO THE RESCUE

“Some of those companies have struggled for many years and now they’re looking at SPACs as a kind of savior,” Nikola’s Brady said.

EV startups Fisker Inc and Lordstown Motors Corp ran into similar problems raising funds privately before cutting SPAC deals to go public, industry officials said.

Lordstown turned to a SPAC when efforts to raise $500 million privately froze as COVID-19 spread across America, Lordstown Chief Executive Steve Burns said.


TESLA ENVY
Investors are also riding the momentum of the EV market, industry officials said. While EVs still make up a small percentage of auto sales globally, many are betting that will change as they enviously eye how the stock of the EV industry’s leader, Tesla (TSLA.O) has soared more than 500% over the past year.

“People are looking for the next Tesla,” said Tony Posawatz, a former GM executive who led the development of the Chevrolet Volt plug-in hybrid car and headed the former Fisker Automotive. He is now a Lucid board member.

EV companies, including Chinese newcomers Nio Inc (NIO.N) and Li Auto Inc LI.O are so popular with investors that some analysts are pushing No. 1 U.S. automaker General Motors Co (GM.N) to spin off its growing EV assets, an idea CEO Mary Barra has not dismissed.

Others with SPAC deals include Velodyne Lidar Inc, online used-car marketplace Shift Technologies Inc and electric truck powertrain maker Hyliion Inc, and Reuters has reported that electric bus maker Proterra Inc was in talks for such a deal.

SPACs are giving these firms access to capital faster than a typical initial public offering, especially in a sector where building a vehicle costs billions of dollars, industry officials said.

The private market is not totally closed for those with strong partners. Last month, EV startup Rivian, backed by Amazon.com Inc (AMZN.O) and Ford Motor Co (F.N), raised another $2.5 billion.


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