A Cold Winter for U.S. Electric Vehicle Startups

On February 19, 2023, Nikola Corporation, the electric vehicle manufacturer based in the United States, filed for bankruptcy protection in the Wilmington court of Delaware, signaling an end to its operationsUnder the supervision of the court, Nikola has plans to auction off its assets.

This marks a significant turn of events for a company that was once hailed as one of the most promising players in the electric vehicle sectorAs the wave of "green investment" subsides, it appears that only a select few will reap the benefits.

Struggling to Survive Bankruptcy

The name Nikola is inspired by Nikola Tesla, the renowned mechanical engineer and a key figure in the commercialization of electricityUnlike Tesla, which focuses on electric cars, Nikola aimed to develop long-haul trucks powered by hydrogen and electricityFounded in 2015 and going public in 2020, the company was once a darling of the green energy investment boom, boasting a market capitalization that rivaled established automotive giants like Ford, and was viewed as a formidable competitor to Tesla.

Nikola's early promotional campaigns were equally legendary, led by its founder Milton, who marketed himself as a high school dropout starting a business from his basementHe proclaimed that Nikola would revolutionize the new energy trucking industryBy persuading investors, including General Motors and Bosch, Milton raised billions of dollars for the company

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However, just five years post-IPO, Nikola faced bankruptcy, evoking sighs of disappointment among many.

In 2020, buoyed by economic stimulus measures due to the pandemic, the U.S. stock market was particularly activeNikola succeeded in its IPO even before any vehicle was deliveredThe company primarily produced long-haul trucks powered by hydrogen fuel cells, which allowed for extended range without the need for heavy lithium-ion battery packsAt that time, investors bet on Nikola's potential to lead the industry much like Tesla, and the stock price soared, peaking at a valuation of $30 billion.

While investor enthusiasm made Milton wealthy in the short term, increasing skepticism about Nikola's technology and delivery capabilities soon took its tollIn September 2020, just a few months after its public debut, renowned short-selling firm Hindenburg published a damaging report, claiming Milton had greatly exaggerated the company’s technological prowess, resulting in a steep decline in Nikola's share price.

Nikola denounced the report as defamatoryNevertheless, weeks later, Milton resigned, and in 2023, he was found guilty of securities and wire fraud and sentenced to four years in prisonMilton is currently appealing his conviction.

Only in recent quarters has Nikola begun delivering electric trucks, but the volumes were so low that profitability remained elusivePresently, the company has suspended manufacturing new trucks to conserve cash before potential bankruptcy.

A report from October 2022 revealed that since production commenced at the end of 2023, Nikola had manufactured only 235 hydrogen-electric trucks

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At that time, the company had $200 million in cash but also held $270 million in long-term debt.

As of the February 19 report, Nikola had merely $47 million in cash leftAfter March, the company would be unable to independently provide vehicle support and service.

"Like many companies in the industry, we are facing market and macroeconomic factors that affect our operational capacity," stated Nikola's CEO Steve Girsky. "Unfortunately, we have not been able to overcome these significant challenges."

In an effort to stay afloat, Nikola has taken numerous actions over the past few months to raise funds and reduce debt, but these measures have proven inadequateNikola has also paid substantial settlements in various investor fraud lawsuits and still owes the U.SSecurities and Exchange Commission around $80 million.

The Retreat of the Green Wave

Nikola serves as a typical example of a company that thrived during the "green investment wave," yet amid this vast expanse, many more are doomed to failRising costs, flagging consumer enthusiasm, and shifting political landscapes have led to an increasing number of electric vehicle startups seeking bankruptcy protectionNotable companies like Fisker, Lordstown Motors, and Electric Last Mile Solutions have all declared bankruptcy in recent years.

Lordstown Motors, a startup focused on electric pickup trucks, operated from a shuttered General Motors plant in Ohio and was also targeted by Hindenburg Research

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On June 27, 2023, the company filed a lawsuit against Foxconn for failing to fulfill a $170 million investment, and later that year, it sought bankruptcy protection.

Rivian, known for its electric trucks and SUVs, once enjoyed a period of glory but failed to meet its promised delivery rates after going publicIts stock price now hovers just below $13, a mere tenth of its value at the end of 2021. Last year, Rivian forged a partnership with Volkswagen, which holds a significant stake in the company, potentially offering a lifeline.

Lucid Motors, a manufacturer of luxury electric vehicles and SUVs, is also far from reaching its original delivery goalsThe company's stock dropped nearly 30% in 2024.

The downturn in the market has also reached Europe, with British startup Arrival, which aimed to produce electric vans and buses, recently filing for bankruptcy protectionSwedish battery developer Northvolt has also succumbed to similar fate.

Additionally, high tariffs imposed on imported vehicles and parts further exacerbate the situation, increasing costs for already struggling businesses.

Currently, almost all startups in the electric vehicle space feel the impact of decreased demand, rising costs, and supply chain disruptions. "This is nothing short of a catastrophe as consumer demand declines," remarked Ted Brandt, CEO of Marathon Capital, an investment bank focused on clean energy.

"The electric vehicle industry is struggling amid fierce competition, operational challenges, and high costs, leading most manufacturers to seek asset sales or liquidation rather than business restructuring," noted Sarah Fosse, legal director at New York financial consultancy Debtwire, indicating that Nikola is treading the same path as its ill-fated counterparts—bankruptcy in order to sell off assets or business lines.