The Rise of SPACs in the Commercial Vehicle Industry

A Special Purpose Acquisition Company (SPAC), also known as a “blank check company” is a corporation with no commercial operations, designed to take private companies public in a specific time frame, often 2 years. The COVID-19 pandemic has led to greater uncertainty in the Initial Public Offering (IPO) market and SPACs have become increasingly popular. Per SPACInsider, this year outpaced last year within the first 6 months and is expected to surpass the last 5 years combined. As of this writing, there have been 169 U.S. SPAC IPOs, or 50% of total U.S. IPOs, with total proceeds of US$62.6 billion. Examples with links to the commercial vehicle industry include Nikola, Hyliion, Workhorse, XLFleet, Lordstown Motors, SBE/ChargePoint, and Velodyne Lidar.

Investors appear to be looking beyond greater risk for the opportunity of potential profits in high-growth sectors and geographies. Although the companies vary in maturity, SPACs provide funding options for pre-revenue firms with aggressive ambitions and less proven business models. The companies tend to have shakier financials as compared to traditional IPO entrants. One example of risk is the alt-fuel commercial vehicle Original Equipment Manufacturer (OEM) Nikola, which is said to be under investigation by the Securities and Exchange Commission and the U.S. Justice Department, and its planned partnership with GM is at risk. Although its shares are down about 75% since the IPO, it remains close to double the private evaluation.

Class 8 Electric Vehicle (EV) powertrain and truck OEM Hyliion saw its stock gain about 600% this past summer up to US$59/share, with the shares coming down in early November to US$22/share. The company does not expect any material volume prior to 2022, and Nikola has cast a shadow on new entrants that have little proven technology or revenue to demonstrate their worth.

XL Fleet, however, an EV solution provider for municipal and commerical fleets already has deployed more than 3,200 systems that have been driven over 130 million miles with clients that include Verizon, FedEx, PepsiCo, and Coca-Cola. It already generates revenue, and is expected to exceed US$21 million this year, with a US$220 million, one-year sales pipeline. Workhorse has been focused on not only the hot EV space, but also on last-mile delivery and drones. Its stock has been on a wild ride this year, but is buoyed by the potential of a huge potential United States Postal Service (USPS) contract for electric step-vans from Ryder and its HorseFly drone, having recently submitted an application with the Federal Aviation Administration (FAA).

Overall, earlier stage companies will find their SPAC-led IPOs and stock prices unpredictable and at risk until a combination of customers and revenue is proven, along with differentiated and desired technology.

The pace of SPACs is expected to continue into the new year, but the risk of overheating developing markets as seen with previous “bubbles” is real. There will continue to be competition for funding for more traditional startups heading into late-stage funding and an appetite for greater funding than has been the norm in the recent past. The concern is that if a category like EVs and alt-fuel SPACs fund more vulnerable companies founded on aggressive predictions, it can bring down funding of the developing industry and set back its momentum or at least starve needed capital from more promising ventures.

The growing list of developing SPACs and the desire to find hot categories needs more due diligence. Some have depended too heavily on big name founders, ranging from Fortune 100 executives to celebrities. If the SPAC trend is expected to continue to thrive, they must step up their discipline on the viability of the technology from trusted, unbiased subject matter experts, the validity of their roadmap timing, and potentially a more robust and timely path to revenue and scalable clients. Perhaps some need to pause before investing in the next shiny startup and further evaluate their proposed Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM).