The crisis of the small electric car is bad for the big ones
Faraday or Lucid have little market share, but their problems warn of a drop in general demand
Laggards in the EV race seem set to drop out. Faraday Future Intelligent Electric stated Monday that it has “substantial doubt” about its ability to remain a going concern. It’s the latest in a series of signs that customer enthusiasm for electric vehicles may be waning. Although this may clear the field of smaller rivals, it is still a bad sign for the industry.
Faraday Future, one of the companies that went public during the SPAC, or blank check vehicle, boom, has yet to deliver cars to customers. The company now has 369 pre-orders, up from 399 at the beginning of the year. The same was true at rival Lucid, whose bookings fell by 3,000 in the third quarter. This means Faraday Future is melting more than $100 million a quarter, prompting it earlier this month to apply for an equity line of credit from hedge fund Yorkville Advisors.
The once insatiable appetite of investors to finance cash-melting electric vehicle manufacturing operations was based on the idea that there was enough demand to absorb any capacity that came online. But with interest rates rising and the economy slowing, consumers don’t seem willing to shell out tens of thousands of dollars for a new car. Even Tesla, Elon Musk’s industry leader, has just seen deliveries to customers fall below its production rate in the last quarter.
However, profitable goliaths like Tesla or General Motors can absorb a degree of slowdown and adjust accordingly: GM executives said in an October earnings presentation that they craft their plans with an eye on how quickly cars sell out. from dealer lots. They also benefit from a portfolio of cheaper cars, which can better withstand a difficult market. Startups like Faraday and Lucid target luxury buyers, with prices well in excess of $100,000.
Although smaller rivals could drop out, these companies are a rounding error in the industry as a whole. In California, one of the main markets for electric cars, the companies Lucid and Rivian Automotive accounted for less than 2% of battery vehicles sold in the first nine months of the year. So they have little effect on overall competitive intensity. Rather, the troubles for these companies may be the prelude to a cold winter for electric cars.
