EV Startups Are Wilting in Harsh Light of Public Eye

(Bloomberg) -- Electric vehicle startups whose valuations soared after reverse mergers are facing greater scrutiny as public companies, triggering turmoil in their boardrooms.

A pair of would-be rivals to EV market leader Tesla Inc. have disclosed departures by senior executives for allegedly misleading investors. Faraday Future Intelligent Electric Inc., which went public via a blank-check company in July 2021, said late Tuesday its chairman and top lawyer would step down as a result of the findings of an internal probe into accusations of fraud. It also suspended its vice president of capital markets without pay until further notice.

An unrelated EV startup called Electric Last Mile Solutions Inc. said the same day that its chairman and chief executive officer resigned after an internal probe discovered the pair allegedly made improper share purchases before announcing plans to go public through a special purpose acquisition company in December 2020.

Messages to the former executives at both startups were not immediately returned.

Shares of both companies fell Wednesday, with Faraday Future dropping 7.5% to close at $4.22 and Electric Last Mile plunging 52% to a record low of $2.71. That was well under their respective debut prices following the mergers.

Electric vehicle startups have historically struggled to drum up the funding required to become true automotive manufacturers. But a wave of cash washed into the industry over the past couple of years as Tesla put to rest doubts about its viability and grew to become the world's highest-valued automaker. That led to a scramble on the part of some investors to seek out the next startup able to follow in the footsteps of Tesla and similar success stories such as Rivian Automotive Inc.

Around $15 billion was raised in 2021 alone by EV-related companies that went public via SPAC, according to research from BNEF published this week.

Federal Investigations

With no revenue but big ambitions, a dozen or more startups went public via SPACs before the market cooled off in January. A handful have triggered federal investigations into how they promoted themselves ahead of their respective mergers, including Lordstown Motors Corp. and Canoo Inc.

Hydrogen trucking startup Nikola Corp. paid a $125 million civil penalty to resolve fraud claims in December, after its own founder and former CEO Trevor Milton was accused by the Securities and Exchange Commission and the Department of Justice. And almost all of the startups face purported class-action lawsuits that allege securities fraud.

Many also have been targeted by short-sellers, who can make money when stocks fall and have in some cases publicized unflattering exposes on these EV companies. Fuzzy Panda Research, a short-focused investment firm, published a report about Electric Last Mile Wednesday morning.

The market has even soured on better-funded EV manufacturers that have shipped vehicles -- a sign of investors' shift away from higher-risk assets. Rivian's share price has fallen 64% from its post-IPO high of $179.47 on Nov. 16, while Lucid Motors Inc. is down 50% from its high of $55.52 on that same day.

Rivian fell 7.6% to close at $64.32 and Lucid declined 7.6% to $27.68.

Some startups are facing questions about decisions made as private companies, long before they ever decided to go public. That has increased investor uncertainly about the wherewithal of these newly listed companies, many of which are still months or years away from building a single vehicle ready for commercial sale.

Opulent Housing

When former BMW AG executive Carsten Breitfeld moved to Los Angeles in 2019 to take over as CEO of Faraday Future, he took up residence in a multimillion-dollar mansion overlooking the Pacific Ocean, according to the founder Jia Yueting's bankruptcy filings.

It was one of at least three Jia purchased to be used as corporate housing, some with money borrowed from Faraday and his other companies in China, the filings show. The homes were used for parties, hosting out-of-town guests, and even as collateral for loans, The Verge has reported.

Faraday's use of the homes -- which are owned by a limited liability company created by Jia -- was one of many decisions the company scrutinized during its investigation. The startup said Tuesday that it will “continue investigative and remedial work, including regarding whether inaccurate disclosures were made relating to its corporate housing arrangements and its related party disclosures.”