| Going Public and Electric Automobility |
I have gathered and summarized what I thought to be interesting and necessary for tech and finance professionals to know over the last quarter. This article makes references to popular concepts and industries, prominent business situations and people movements, plus some other insightful resources.
Hot Concept #1: Direct Listing
Direct Listing allows a company to go public at a more market-based, fair and (supposedly) accurate valuation. The company may need an investment bank to help run the process but would not need the bank to underwrite its shares. The key downside is that the company cannot simultaneously raise capital through issuing new shares to the public. And yes, public investors and banks are not fond of Direct Listing).
Venture capital firm Andreessen Horowitz did a good job explaining in detail what Direct Listing is all about through this primer post and podcast.
The listing method rose to fame when Spotify chose this option to go public in 2018 (Harvard Law School published a case study on it), followed by Slack in 2019.
It has received increasing attention from the market in Q3 2020 as several reputable tech companies went public through Direct Listing, including cloud-based data-warehousing firm Snowflake, Dustin Moskovitz’s enterprise software firm Asana, as well as Peter Thiel’s controversial (or patriotic), 17-year-old (still loss-making) data-mining company Palantir.
Hot Concept #2: SPAC
But the even more popular listing method these days in the US is via a Special Purpose Acquisition Company (SPAC), or blank-check company – a shell established to acquire real companies or assets. Management will raise capital through listing the SPAC and use the listing entity as a “backdoor” for the target company to go public with limited scrutiny and fees. Investors will get their money back if the SPAC fails to acquire a company within two years.
Venture capitalist Bill Gurley tells you everything you need to know about SPAC (vs. traditional IPO and direct listing). (link)
For a more technical read about SPAC, check out this post by Harvard Law School. (link)
As of Q3 2020, the largest SPAC went to hedge fund manager Bill Ackman’s US$4 billion Pershing Square Tontine, which approached Airbnb for a potential deal but was rejected.
According to FactSet, a total of 77 SPAC IPOs took place in Q3 alone, representing 47% of the total 165 companies that went public in the US (and there were only 55 SPAC IPOs in 2019).
Spotlight Industry: EV and Autonomous Driving
It was a HUGE quarter for the electric vehicle industry.
Propelled by the popular SPAC, EV/AD has become the coolest kid on the block of capital markets, with numerous companies in the value chain having announced to go or went public via SPAC this past quarter, all of which are achieving billion-dollar valuations.
EV/AD players seem to be fitting targets for SPACs because these start-ups epitomize the global automotive transformation (i.e. possess attractive growth stories for investors) but are also heavy cash-burning machines that will benefit from fresh capital.
Here are the key EV/AD-SPAC situations that took place in Q3:
Electric truck start-up Hyliion (via Tortoise) – closed on October 1st. Founder Thomas Healy, 28, became America’s youngest self-made billionaire. (see investor presentation)
EV subscription and platform maker Canoo (via Hennessy Capital) – announced in August. Originally named Evelozity, Canoo was founded by ex-BWW, ex-Faraday Future auto veteran Ulrich Kranz and Stefan Krause, who left to join Fisker Inc. as President and COO in July after being sued by his wife for gender and marital discrimination. Despite the recent leadership changes, Canoo seems to have a solid alliance with Hyundai. (see investor presentation)
General Motors-backed electric pick-up truck player Lordstown Motors (via Diamondpeak) – announced in August. (see investor presentation)
Premium EV start-up Fisker Inc. (via Spartan Energy which is owned by Apollo) – announced in July. Although related, the company is not to be confused with Fisker Automotive, which went bankrupt in 2014 and became Karma Automotive after Wanxiang Group’s purchase. Founder Henrik Fisker has a clearly flamboyant but arguably rough automotive career. (see investor presentation)
LIDAR senior start-up Velodyne (via Graf Industrial) – closed in September. (see investor presentation)
Another LIDAR senior start-up Luminar (via Gores Metropoulos), which is also backed by Peter Thiel – announced in August. (see investor presentation)
EV charging network company ChargePoint (via Switchback Energy) – announced in September. EV fanatic Baillie Gifford is once again an investor, together with Daimler, BMW, Siemens and Chevron. (see investor presentation)
EV powertrain company XL Fleet (via Pivotal Investment) – announced in September. (see investor presentation)
Used car e-commerce platform Shift Technologies (via Insurance Acquisition) – announced at the end of June. (see investor presentation)
While SPAC does give a capital and media boost to many of these automotive contenders, listing on the stock market exposes themselves to increasing public and regulatory scrutiny.
The prime example would be hydrogen and battery-electric truck start-up Nikola, which also went public through merging with SPAC VectoIQ in Q2.
The Phoenix-based start-up has been on the boiling seat since September, with General Motors announcing a US$2 billion equity investment (11% stake) on the 8th followed by the “intricate fraud” accusation on the 10th made by short-seller Hindenburg Research, which triggered the launch of the SEC’s and DoJ’s investigations and led to founder and chairman Trevor Milton’s resignation on the 20th. Here is the contentious company’s roadshow presentation in April 2020.
Other non-SPAC related development in the EV industry:
Key Chinese EV players have also taken full advantage of the supportive capital market environment in Q3:
In July, hybrid EV maker Li Auto went public in Nasdaq. (link)
In August, pure battery EV maker Xpeng went public in NYSE. (link)
In September, WM Motor, another Chinese EV competitor, raised a Series D round mainly from Chinese government-related parties. (link)
Together with Nio, which was listed on NYSE since September 2018, these four are the most well-known Chinese EV start-ups, as of 2020. Time shall tell whether they will be the next Tesla or Saab.
In Silicon Valley, high-end EV manufacturing start-up Lucid launched its new sedan Lucid Air, which will cost US$169,000 (for the top-spec Dream Edition). Pricing is off but it is a start. Although the company also mentioned that the base model will be priced at US$77,400, or US$69,000 post tax credit, the economic option will not go on sale until 2022.
Majority owned by the Public Investment Fund (PIF) of Saudi Arabia, Lucid can well be the next EV player going public via SPAC.
California-based electric bus maker Proterra is also contemplating a listing.
Thanks to Tesla, Carolina-based Piedmont Lithium was up 240% in a day.
In Europe, lithium battery maker Northvolt completed a private capital raise led by Baillie Gifford (again) alongside Goldman Sachs, Volkswagen and Spotify co-founder and CEO Daniel Ek.
Speaking a bit on my current industry:
Amid the challenging business environment caused by the Covid-19 pandemic, it does appear that automakers nowadays either prefer to focus on their core business or are simply ill-suited to run a mobility business, or both.
In Europe, Daimler-BMW ride-hailing joint venture Free Now may be up for sale. Uber is keen to buy it to solidify its market position on the continent.
In the US, General Motors closed its car-sharing service Maven in April (not part of Q3, but very relevant news).
So when it comes to China, will the efforts of these automaker-backed mobility companies lead to the same verdict? There are four major players at the moment:
Caocao: ride-hailing unit of Chinese auto manufacturer Geely
T3: ride-hailing platform developed by the three central government-owned automakers FAW, Dongfeng and Chang’an and invested by Alibaba and Tencent
OnTime: ride-hailing platform owned by state-owned automaker GAC and Tencent
Xiangdao: ride-hailing unit of the #1 Chinese stated-owned automaker SAIC
Must-know Global Corporate Situations
The Trump-Tiktok-Microsoft-Oracle-Walmart situation needs no introduction. The imminent break-up of Tiktok from its parent company Bytedance opened another chapter of the US-China rivalry after the US’s sanction against Huawei.
Nvidia to acquire Arm from Softbank for a whooping US$40 billion. (see Nvidia’s deal presentation) Semiconductor is a key tech battlefield between China and the US as chip computing power is key to the advancement of artificial intelligence. The cross-border transaction may face multiple regulatory hurdles, especially from China, since the deal requires approvals from the governments of the US, UK and China. Here is a podcast discussion by Silicon Valley venture capitalists.
It is unfortunate to see geopolitics playing an increasingly prominent role in the world of tech innovation as the top two superpower nations intensify their digital competition.
The duel draws some level of resemblance to the post-WWII Cold War between the Soviet Union and the US and the high-tech trade war (mainly on electronics) between the US and Japan in the 1980s.
There is a Chinese saying: A mountain cannot tolerate two tigers.
After all, are we better off dividing or uniting?
People Mobility
The biggest news was the sudden resignation of Japan Prime Minister Shinzo Abe, who was succeeded by Yoshihide Suga since mid-September. Best known for his economic policies dubbed Abenomics, Shinzo Abe is the longest-serving prime minister in Japanese history.
Ex-Walt Disney senior executive Kevin Mayer joined Tiktok as the CEO in May 2020, only to resign three months later, amidst the US government’s action to force a sell-off of Bytedance’s US business. He is rumored to be joining the investment management industry.
Jane Fraser will become the first female CEO to lead a major wall-street bank, Citigroup. (link)
Interesting Term in the Media
The “Nasdaq Whale” – Softbank.
Other Fascinating Insights
Knowledge of the global picture: 10 investment themes for the next 10 years. (link)
State of AI Report 2020. (link)
SCMP China Internet Report 2020. Free and paid versions available. (link)
A thorough analysis: How China built an EV industry in a decade. (link)
Interesting perspective on the future of ride hailing is a remote-control rental car. (link)
The 10 hard skills and 5 soft skills are that most in-demand in 2020. (link)
Something to Look Forward in Q4
The 2020 US presidential election. No doubt this is the most anticipated event.
Ant Group’s record-breaking US$35 billion Shanghai-Hong Kong dual-listing to take place at an unprecedented US$300+ billion IPO valuation, the largest in history.
Airbnb’s ~US$3 billion US IPO. Although much smaller compared to Ant Group, the world outside of China would know the home rental unicorn much better than the fintech giant.
Meaningful progress on the Covid-19 vaccine development (hopefully).
Sherman
Time to Mobilize.