Everyone Wants In on That Crazy Tesla Money
Call it "Tesla euphoria." Every EV startup is after a sky-high valuation now.
Good morning and welcome back to Speed Lines, The Drive's roundup of what matters in cars and transportation. It's Wednesday, my dudes. On today's agenda: EV startups vie to be the "next Tesla," at least as far as stock prices are concerned; automakers push for the next level of autonomous driving without safety rules to go by; and WeWork's Adam Neumann is back and in the mobility space. Hooray for all involved.
"Reaching For A Dream"
As we've covered throughout the year here on Speed Lines, one of the biggest automotive stories of 2020 has been Tesla's stratospheric valuation, something that has risen to incomprehensibly high levels. To recap, Tesla is now "worth" more than American Express and Bank of America, and more than Volkswagen, GM, Honda, Fiat Chrysler and Ford combined. Though the auto industry is beset by flagging sales and production issues amid the pandemic, electric vehicles are the way of the future, and Tesla leads the way there.
What that means is that Wall Street investors, always on the hunt for the next Facebook or Amazon to get make them richer, have zeroed in on electric vehicle startups. All of them, no matter whether they produce cars or revenue or have a factory or not. EV semi-truck startup Nikola hasn't made anything yet, but it was valued as high as $34 billion this summer in moves that made its founder very wealthy overnight.
Everyone wants in on the next big thing, Bloomberg reports, calling the phenomenon "Tesla euphoria." Here are some examples, emphasis mine:
After Nikola, the most valuable U.S.-listed electric-auto entrant is NIO Inc., the Chinese maker of battery-powered SUVs. Through June, it’s handed over less than 50,000 vehicles in the roughly two years since it started delivering vehicles. But its stock has surged 244% this year.
Then there’s Workhorse Group Inc., which is trying to produce and sell just 400 electric delivery vehicles this year. Its shares started surging in the run-up to Vice President Mike Pence’s visit to a politically significant factory that an affiliate acquired from General Motors Co. and is trying to revive. The stock is up 408% year-to-date.
Investors are rewarding these companies based on their business plans, but Tesla may prove to be the exception rather than the rule when it comes to mass-producing, retailing and servicing vehicles. They face an uphill battle getting the cash they need to compete with Tesla and major carmakers, said Tony Posawatz, a consultant who led development of GM’s plug-in hybrid Chevrolet Volt.
I emphasize that because even Elon Musk will admit as much is true. Starting a car company—or semi-truck company, whatever—is a grueling, capital-intensive business with countless challenges around the sales model alone. Not all of these companies will survive and not all of them will even get to the point where they build actual cars you can buy. When was the last time you set foot in a Faraday Future dealership?
But the craze around EV startups and their stocks will be a trend to watch in 2020, a gamble that at least a few of these companies will pay off in a big way much as Tesla did. One word of caution from that story, however:
“There’s a lot of delirium,” said Aswath Damodaran, a professor at New York University’s Stern School of Business. “Each company is looking up the ladder: Tesla is the next Amazon, Nikola is the next Tesla, and so on.”
Damodaran said he doubts that each new entrant will be able to pull off their growth projections and that the electric-vehicle market is not big enough for every one of the companies to succeed. “We are all now reaching for a dream,” Damodaran said, “and that’s not the way to invest.”
My thinking is that we'll see a few startups prevail (including Tesla) but the biggest shift to EVs will come from legacy automakers with built-in production infrastructure who move their fleets to battery power over the coming years. But that isn't as sexy as a small, new company becoming "the next Amazon," so they'll have a lot of investor-convincing to do.
The Autonomy Game Doesn't Have Rules
Speaking of Tesla, Musk says the company is "very close" to Level 5 autonomy, which would theoretically allow for fully automated driving without human intervention. I think you should take that claim with a grain of salt. But one thing is clear: the autonomy sector is advancing very quickly in 2020, but it continues to do so without any real federal safety guidelines or industry-wide standards.
Imagine designing seat belts, airbags and braking systems absent of any unified guidelines on how to do so. That's the position automakers and tech startups alike continue to be in, as Reuters notes here, emphasis mine again:
Critics charge that the technology to automate highway driving, parking and navigation in stop-and-go traffic is being deployed in a regulatory vacuum where an absence of industry-wide standards and common terminology creates confusion about what the systems can safely do.
The U.S. National Highway Traffic Safety Administration, in a written response to Reuters, said it is still conducting research and gathering data on hands-free technologies, which it said are “not sufficiently mature” to require formal federal standards.
Former NHTSA chief Mark Rosekind said the industry may need to further develop the technology before federal mandates are needed, but agreed things are confusing for consumers.
“If people don’t know what they’ve got and how it actually operates, that’s a safety issue,” added Rosekind, who is chief safety innovation officer at self-driving startup Zoox, which is being acquired by Amazon.com Inc(AMZN.O).
Jason Levine, head of the Center for Auto Safety advocacy group, said NHTSA should develop minimum performance standards. “Even if consumers know what the feature is supposed to do, there’s no standard to be sure it’s even performing as advertised,” he said.
That's pretty damning. And it opens this technology to wide misunderstanding and misuse, like all these goons who keep taking naps while "Autopilot" is on. And even industry groups like J.D. Power can't agree on the terms to use to describe these systems.
There's no point to this item except to say that this side of autonomy is a mess, and there seems to be very little will and consensus on how to fix it. For now, just keep your hands on the wheel, I guess.
WeWork's Founder Is Back
It feels like 5,000 years ago in the Age of Corona, but let us not forget Adam Neumann, the co-founder and former CEO of WeWork, whose office-sharing startup rose and fell with breakneck speed and took a lot of capital—and jobs—along with it. That story's too long to recap here. Google it if you don't know. (Full disclosure: The Drive was briefly based out of a WeWork in New York before the pandemic hit. I didn't care for it, personally.)
The point is that, according to a scoop in Tech Crunch, Neumann is back and in the mobility space despite WeWork's collapse and his own lawsuit against SoftBank:
Neumann’s family office, 166 2nd Financial Services, invested $10 million into GoTo Global, as part of a $19 million Series B round. As part of his investment, Neumann will be able to appoint one board member on his behalf. Existing shareholder Shagrir Group Vehicle Services, a publicly traded Israeli company, also participated in the round.
GoTo Global (also referred to is GoTo Mobility) is mobility-as-a-service company that is aiming to cover the entire range of shared vehicles from cars and mopeds to bicycles and electric scooters. The company, which started in 2008 with a focus on car-sharing, previously raised $3 million in seed funding. It had also secured a $9 million loan from Shagrir, which has been converted into the equity investment.
[...] Neumann made the investment because he believes flexibility will be a key component in people’s lives post-COVID-19, the source said.
It's Neumann's first investment since the WeWork debacle. Let me know when he starts talking about scooters on Mars and rescuing orphans.
On Our Radar
Massachusetts sues Uber, Lyft over driver status as contractors (Automotive News)
GM gets OK to make N95 face masks: Where they'll be used (Detroit Free Press)
Read These To Seem Smart And Interesting
Social media and the end of discourse (The Verge)
Which of these new EV startups—not Tesla, the other ones like Nio and Nikola and Karma—will actually make it? Which ones aren't worth investing in?