Tesla (NASDAQ:TSLA) has taken the auto industry by storm and built a $655 billion behemoth of a company along the way. But with only $1.1 billion in net income, most of which comes from regulatory credits, the company is highly valued, even for an electric vehicle stock.
A new kind of EV company
Travis Hoium (Fisker): Tesla disrupted the traditional auto industry by making electric vehicles people could use as their everyday cars and upending the old dealership model. But the business model innovation doesn’t end there. Fisker is an EV company but it’s contracting all of its manufacturing, delivery, and service operations to third parties. Fisker is focusing on building a brand that can generate sales and leaving manufacturing to companies like Foxconn and Magna International, which have manufacturing expertise.
It’s an innovative strategy that has only been partially tried in the auto industry. Companies have been outsourcing the manufacture of parts like seats, dashboards, driveshafts, and others for decades, but assembly normally happens in a company’s assembly plant. Fisker is asking why it even needs to do the assembly.
Where Fisker is adding value is in design and financing its vehicles. The company has promised a zero-commitment lease for $379 per month with a $2,999 initiation and activation fee. The design and financing of vehicles has always been a key part of the value auto companies add and Fisker is just leaning into that.
While Fisker may be going about the auto business a little differently than anyone before it with an asset-light business model that relies on a lot of partners, I think the company has a great chance of succeeding. If it does, the $5 billion market cap the company has today will seem cheap by EV standards.
A unique approach
Howard Smith (Arrival): Investing in an electric vehicle start-up isn’t for everyone. But buying Tesla at its current lofty valuation also takes an aggressive investor. Those who want to pass on Tesla stock should look into another innovative EV maker. Europe-based Arrival is taking a unique approach to the EV market, and has an important investor and future customer in United Parcel Service (NYSE:UPS).
Arrival’s plan is to use smaller, more flexible manufacturing centers it calls microfactories that it can build with less capital than traditional manufacturing plants, and that it can locate near customer facilities. Arrival is currently building two microfactories in the eastern U.S. One, located in Charlotte, North Carolina, will be initially dedicated to making up to 10,000 electric delivery vans UPS has ordered. Its other two initial facilities will be in the U.K. and Spain.
Arrival has also announced a collaboration with Uber Technologies (NYSE:UBER) to develop an electric car specifically intended for the ride-hailing business. The company said it will tap input from Uber drivers for the design process to “prioritize driver comfort, safety, and convenience.” Arrival said the car’s design should be ready by the end of 2021, and plans to have the Arrival car in production by the third quarter of 2023.
The company also plans to produce electric transit buses in both the U.S. and U.K. Arrival came public through a special purpose acquisition company (SPAC) merger in March 2021, and expects to have its first vehicles produced in the fourth quarter of this year. The merger transaction resulted in the company holding about $600 million in cash and equivalents as of March 31.
As a pre-revenue start-up, the risk in owning Arrival shares is unmistakeable. But for investors looking to be aggressive in the EV sector, Arrival might be an investment to look into.
“Baby Tesla” in the making
Daniel Foelber (Lucid Motors): Tesla’s stock may be pricey but that doesn’t take away from the impressive feats America’s most valuable automaker has accomplished over the past few years. However, competition in the EV space is intensifying with several up-and-coming companies gunning for a slice of the pie. One such automaker is Lucid Motors, which plans to raise $4.6 billion in cash when it merges with a SPAC called Churchill Capital IV (NYSE:CCIV).
Lucid has increased its reservations across its Air product line from around 7,500 in February to 9,000 in May, to over 10,000 today. The company’s most expensive trim, the Lucid Air Dream Edition, is fully reserved with deliveries slated to begin later this year.
Lucid’s CEO, Peter Rawlinson, served as the chief engineer of the Tesla Model S. Rawlinson and the Lucid management team recognize that for all its brilliance, Tesla made a lot of mistakes early on, the general theme being trying to juggle too many projects at once. So while Lucid wants to have an energy storage division and make SUVs down the road, it’s prioritizing the Lucid Air sedan first.
Lucid wants to pair its cutting-edge new technology with the sophisticated mass production that legacy automakers have come to perfect. It also wants to take a page out of Tesla’s book by being profitable early on and limiting the use of debt. Too much reliance on debt is a criticism of legacy automakers, and one of the biggest reasons why so many car companies have failed in the past.
Lucid’s facility in Casa Grande, Arizona, sports an existing production capacity of 34,000 units per year. Phase 2, which would bring capacity up to 90,000 units per year, is in progress as the company plans to scale annual deliveries from an estimated 20,000 in 2022 to 90,000 by 2024. A fourth phase would expand the Casa Grande complex and allow it to produce an estimated 1,000 units per day.
On Friday, Lucid announced that its management team would be hosting an investor call on Tuesday, July 13, to go over recent developments and what to expect from the intended business combination with Churchill Capital in a couple of weeks. Folks interested in learning more about the company and gathering up-to-date information about its plans could stand to benefit from tuning in.
Despite Lucid’s impressive technology, skilled management, and lofty targets, the company has yet to scale and compete on the global stage. Investors should keep in mind that Lucid is a largely unproven company and an undeniably expensive stock. But if all goes according to plan, it could very well be a baby Tesla in the making.
Disruption is coming to the auto market
What’s clear from these companies is that disruption is coming to the auto market. Not only is the number of EVs hitting the market growing, but there are also new business models and manufacturing strategies for investors to evaluate. And these innovations are a big reason why Fisker, Arrival, and Lucid Motors are top picks for us in the EV market today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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