In late 2008, a Silicon Valley blog posted a report on how an electric-car startup that raised $145 million from investors had only $9 million in cash left in the bank and might not be able to deliver its first cars to customers.
No, that beleaguered car company wasn’t Fisker, Aptera, Coda, Think, or any of the other independent electric-car companies operating at that time. The company was five-year-old Tesla. It was trying to deliver the very first orders of its Roadster model.
Tesla now has 30,000 employees and, depending on its stock price, has been declared the most valuable automaker in the U.S. But it faced a near-death experience -- an all-too-common occurrence for electric-car startups.
Tesla’s success has reignited enthusiasm for startups trying to build electric cars in recent years. But it hasn’t made success any easier to obtain.
The capital requirements are extremely high, and the gap between making a drivable prototype and mass-producing a car in a factory is wide and treacherous. It is called the “valley of death” for a reason.
Take two high-profile electric-car startups of 2017: Faraday Future and Lucid Motors. Both appear unlikely to survive as independent entities thanks to the proverbial valley of death and cash struggles.
Last Thursday it was reported that Lucid Motors -- a company that has experienced many ups, downs and pivots over its decade-long life -- is short on cash as it tries to move into manufacturing. Lucid has designed the electric Lucid Air, a gorgeous Tesla Model S competitor, but it hasn’t yet started making it in volume at a factory.
The company has been raising money to build the car in Arizona. But factories are expensive, and it’s difficult to raise hundreds of millions of dollars for such a risky endeavor. Recode writes that Lucid needs “a make-or-break loan” from the Department of Energy to build its $700 million factory in Arizona.
Tesla got one of these loans in 2010. But that was a different era entirely. Since then, Fisker (which also got one) and Solyndra (another loan recipient) went bankrupt, and cleantech became a lot more politicized. The chances of the DOE doling out hundreds of millions of dollars to an electric-car startup in the Trump era are pretty low. Lucid could also take the alternate path of building a plant in China, but executives have said they want to manufacture in the U.S.
Ford has reportedly been interested in acquiring Lucid. Folding patents and designs into Ford might be Lucid’s best chance for getting its technology into production. But if the acquisition price isn't high enough, the company’s long list of investors might push back (it’s already raised hundreds of millions of dollars).
Fundraising (a Series D round) has already taken long enough that Lucid reportedly pushed back its production plans from 2018 to 2019. (The company declined to comment for this story.)
Lucid isn’t alone in needing cash to make it through the valley of death.
Earlier this month, Faraday Future halted its plans to build a $1 billion factory in Nevada, after spending $120 million on the project. The local community had been expecting thousands of jobs from the plant. Nevada state officials pledged $335 million for the factory, but hadn’t yet spent any taxpayer money on it.
Faraday Future designed an electric car called the FF 91 and showed it off at the Consumer Electronics Show in January. The car was supposed to go into production in 2018. It’s unclear what’s going to happen the company now, but it’s hired a new CTO to try to get the car to market.
Both Lucid Motors and Faraday Future were funded by Chinese billionaire and LeEco founder Jia Yueting. After overspending massively on his companies, Yueting stepped down from LeEco earlier this month, and reportedly had $180 million of his assets frozen by a Shanghai court.
Part of Lucid’s and Faraday Future’s struggles can be attributed to an over-exuberance from Chinese investors with little auto experience looking to build electric-car companies. But struggles are also just par for the course for electric-car startups.
It’s no surprise that the world’s only real all-electric car contender (yes, Tesla) had to be built by a successful entrepreneur who could bridge the company’s cash shortages himself. Elon Musk regularly acknowledges that Tesla was a gamble early on.
Even Tesla, with all of its achievements, isn’t immune today. It’s a public company, but to a large extent it still operates like a nimble and risky startup.
Tesla plans to ship the first Model 3 cars to customers this month, but it’s seen flat deliveries of the Model S and Model X this year and it has yet to turn an annual profit. It also continues to fundraise to feed its huge cash needs ($2.5 billion in the first half of this year), such as getting the Model 3 to market and building the Gigafactory. (And then there's the whole solar business, which is also in flux.)
The big auto companies are likewise spending huge amounts of money trying to electrify a substantial proportion of their products. VW said it will spend $10 billion on transforming into an electric car company by 2019. GM, Ford and BMW are doing the same.
It's possible that these aggressive moves from the big auto companies could help some electric car startups, like Lucid. But it’s clear that despite Tesla’s recent success, it’s still as hard as ever to be an independent electric-car company.