Mobility Tech
As EV blank-check boom fades, VCs double down on electrification startups
October 18, 2021
When Nikola Motor made its stock market debut a little more than a year ago, the battery-powered truck company signaled the start of a hype cycle that has reverberated from leading automakers down to the startups serving the coming electric vehicle economy.
More than a half-dozen rivals followed Nikola in signing similar blank-check deals. Big automakers like GM and VW have since forsworn internal combustion engines and sold their investors on an all-electric future. And venture capitalists this year have bet almost $18 billion on startups that support the EV transition—from batteries and charging to lithium mining and fleet financing.
In recent months, much of the sheen has worn off alongside sinking share prices for EV makers that merged with SPACs. Nikola itself has seen its stock drop more than 70% since its merger deal was completed.
Meantime, however, venture-backed startups in the industry have been a hit in the private market. Global VC investment in electric vehicle startups has topped $17.8 billion this year, blowing past last year's total of $10.6 billion, according to PitchBook data.
"The mobility SPAC boom shepherded a lot of private capital towards early-stage startups because venture investors now have a more clear line of sight to a successful exit than they did before," said Asad Hussain, an emerging tech analyst at PitchBook.
Some of the largest funding rounds have gone to vehicle manufacturers like Rivan and China's Weltmeister. But increasingly, the spoils are shared by startups that aim to support electric vehicle adoption in other ways, such as battery makers Svolt and Sila Nanotechnologies.
Despite significant advances in batteries, their limited driving range remains a top concern for car buyers. That might explain investors' bullishness on entrepreneurs seeking to cram more energy into batteries while reducing space, costs and charge times.
In August, China-based Svolt raised $1.6 billion from state-backed funds and investors like IDG Capital and China Renaissance. And earlier in the year, California-based Sila raised $590 million in fresh cash.
Another approach that continues to attract funding is battery swapping, which can be attractive for fleet operators that want to avoid long charging times. Startups Ample and Aulton recently raised mega-rounds to target the taxi and ridehailing industry in China and the US.
As electric vehicles become more commonplace, they are likely to become platforms akin to the Apple app store that will support a marketplace for new services, said Vitaly Golomb, a partner at Drake Star who has advised on mobility tech deals.
"As soon as [EVs get] to a certain critical mass of customers, you're going to get these third parties that will start showing interest to get into the market," Golomb said.
The challenge is that EVs have yet to reach the scale needed to make that vision a reality. Battery-powered cars accounted for just 4.6% of global auto sales in 2020, according to the International Energy Agency.
Still, many startups are building capacity to meet the industry's future large-scale needs.
A looming challenge is to address what happens when batteries reach the end of their useful life, and investors are already picking winners. Redwood Materials has emerged as an apparent leader in the US, raising $700 million this year, led by T. Rowe Price, to build its battery recycling operations. Because the average life cycle of batteries is predictable, companies like Redwood can easily gauge future recycling demand based on current EV sales.
Major automakers have announced a spate of partnerships and pilot projects with startups to recapture EV batteries, which are expected to see shortages within the decade, according to the Center for Automotive Research. By reclaiming critical metals from spent batteries, companies hope to offset this shortage and reduce dependence on foreign supply chains.
This supply chain challenge has also spurred VC interest in tomorrow's lithium mining technology.
Lilac Solutions recently raised $130 million from investors including BMW I Ventures and SK Materials. Its mission: to extract lithium from saltwater deposits without using evaporation ponds and reduce the environmental impact of the process, which has contributed to water shortages and contamination.
Fintech companies have also spotted an opportunity in EVs by providing leasing options with little upfront investment. British startup Onto raised $175 million in equity and debt to build a leasing platform for consumers. In the US, Highland Electric raised $235 million to finance and manage all-electric fleets of school buses.
While unproven EV makers have seen their stock prices sink from the sky-high levels seen at the start of 2021, there's still juice in the tank for the most promising candidates.
Polestar, which spun out of Volvo in 2017, was valued in September at $20 billion in a deal with a SPAC backed by the Gores Group and Guggenheim Partners. And Rivian is reportedly seeking a valuation of around $80 billion in its imminent IPO.
Time will tell who the winners and losers are in the EV race, but for now the industry's continued growth is pulling more investors into the electricity ecosystem's burgeoning market.
More than a half-dozen rivals followed Nikola in signing similar blank-check deals. Big automakers like GM and VW have since forsworn internal combustion engines and sold their investors on an all-electric future. And venture capitalists this year have bet almost $18 billion on startups that support the EV transition—from batteries and charging to lithium mining and fleet financing.
In recent months, much of the sheen has worn off alongside sinking share prices for EV makers that merged with SPACs. Nikola itself has seen its stock drop more than 70% since its merger deal was completed.
Meantime, however, venture-backed startups in the industry have been a hit in the private market. Global VC investment in electric vehicle startups has topped $17.8 billion this year, blowing past last year's total of $10.6 billion, according to PitchBook data.
"The mobility SPAC boom shepherded a lot of private capital towards early-stage startups because venture investors now have a more clear line of sight to a successful exit than they did before," said Asad Hussain, an emerging tech analyst at PitchBook.
Some of the largest funding rounds have gone to vehicle manufacturers like Rivan and China's Weltmeister. But increasingly, the spoils are shared by startups that aim to support electric vehicle adoption in other ways, such as battery makers Svolt and Sila Nanotechnologies.
Despite significant advances in batteries, their limited driving range remains a top concern for car buyers. That might explain investors' bullishness on entrepreneurs seeking to cram more energy into batteries while reducing space, costs and charge times.
In August, China-based Svolt raised $1.6 billion from state-backed funds and investors like IDG Capital and China Renaissance. And earlier in the year, California-based Sila raised $590 million in fresh cash.
Another approach that continues to attract funding is battery swapping, which can be attractive for fleet operators that want to avoid long charging times. Startups Ample and Aulton recently raised mega-rounds to target the taxi and ridehailing industry in China and the US.
As electric vehicles become more commonplace, they are likely to become platforms akin to the Apple app store that will support a marketplace for new services, said Vitaly Golomb, a partner at Drake Star who has advised on mobility tech deals.
"As soon as [EVs get] to a certain critical mass of customers, you're going to get these third parties that will start showing interest to get into the market," Golomb said.
The challenge is that EVs have yet to reach the scale needed to make that vision a reality. Battery-powered cars accounted for just 4.6% of global auto sales in 2020, according to the International Energy Agency.
Still, many startups are building capacity to meet the industry's future large-scale needs.
A looming challenge is to address what happens when batteries reach the end of their useful life, and investors are already picking winners. Redwood Materials has emerged as an apparent leader in the US, raising $700 million this year, led by T. Rowe Price, to build its battery recycling operations. Because the average life cycle of batteries is predictable, companies like Redwood can easily gauge future recycling demand based on current EV sales.
Major automakers have announced a spate of partnerships and pilot projects with startups to recapture EV batteries, which are expected to see shortages within the decade, according to the Center for Automotive Research. By reclaiming critical metals from spent batteries, companies hope to offset this shortage and reduce dependence on foreign supply chains.
This supply chain challenge has also spurred VC interest in tomorrow's lithium mining technology.
Lilac Solutions recently raised $130 million from investors including BMW I Ventures and SK Materials. Its mission: to extract lithium from saltwater deposits without using evaporation ponds and reduce the environmental impact of the process, which has contributed to water shortages and contamination.
Fintech companies have also spotted an opportunity in EVs by providing leasing options with little upfront investment. British startup Onto raised $175 million in equity and debt to build a leasing platform for consumers. In the US, Highland Electric raised $235 million to finance and manage all-electric fleets of school buses.
While unproven EV makers have seen their stock prices sink from the sky-high levels seen at the start of 2021, there's still juice in the tank for the most promising candidates.
Polestar, which spun out of Volvo in 2017, was valued in September at $20 billion in a deal with a SPAC backed by the Gores Group and Guggenheim Partners. And Rivian is reportedly seeking a valuation of around $80 billion in its imminent IPO.
Time will tell who the winners and losers are in the EV race, but for now the industry's continued growth is pulling more investors into the electricity ecosystem's burgeoning market.
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