You Placed the Wrong Bet on Nikola, So What’s Next? — Part II
Recent SPACs in EV / Renewable Energy / Autonomous Driving: Luminar, Velodyne, QuantumScape, Romeo
Investors are looking for the next Tesla or Nio, but they placed the wrong bet on Nikola. If you ask me, SPAC is the second most heard acronym after COVID during this pandemic. Used to be the ugly child that no one talked about, it has now taken the spotlight from IPOs and direct listings and garnered interests from both retail and institutional investors. 2020 has seen more IPOs of these blank check acquisition vehicles than ever before, backed by high-net-worth individuals and investment funds. And EV / Autonomous Driving is no doubt one of the hottest areas where many companies made their most recent public debuts. Here I will zoom in on the most recent SPACs in this area and take a closer look at the businesses to help you better understand them before making your next bets.
Part I was focused on EV automakers. In Part II here, I will cover autonomous driving and EV battery technologies.
Luminar Technologies
Founded: 2012, Orlando, FL
Business Description: Luminar manufactures lidar sensors for autonomous vehicles from the chip-level up. Their sensors are intended for mass-production automotive applications, offering a solution to Level 3 through Level 5 autonomous vehicle manufacturers. It is intended for a “lower-end” market (compared to Velodyne at ~$75,000 a unit) and aimed to bring the costs down to ~$1,000 through mass adoption across automakers at series production scale.
Luminar is notable for basing its lidar on moving parts rather than solid-state methods, and for choosing a laser wavelength that’s safe for the eyes and can thus be projected at high intensity. It uses just one widely sweeping laser and receiver‚ unlike the 128 laser/receiver pairs in the top-of-the-line product from Velodyne, the company that started automotive lidar and still dominates the market. Velodyne’s lasers move visibly, rotating on the roof of the car, whereas most of the 60-odd lidar startups have preferred solid-state solutions. The idea is that nonmoving devices should be cheaper and more resistant to degradation under road conditions.
Latest Status: started trading as NYSE:FSR on Oct 30, 2020
Transaction Structure: $500M from SPAC Gores Metropoulos and Series X of $170M (from Alec Gores, Van Tuyl Companies, Peter Thiel, Volvo Cars Tech Fund, Crescent Cove, Moore Strategic Ventures, Nick & Jill Woodman and VectorIQ)
Valuation: ~$3.4B EV; 7.9x 2025E EBITDA (36.0–44.0x 2025E EBITDA discounted to present value)
Benchmarking: Nvidia, Xilinx, Mobileye, Ambarella, Tesla, Cree
Stage of Development:
- Hyrda, already launched, is used for testing and development programs
- Iris, an auto-grade package, is planned to launch in 2022 for series-production programs of 1,000–1M+ vehicles
- Luminar has already struck a deal with Volvo. The automaker will incorporate Iris into their new lidar-equipped vehicles rolling off the production line in 2022
Velodyne Lidar
Founded: 2005, San Jose, CA
Business Description: Velodyne is a leading lidar technology provider who has licensed its technology through long-term developmental contracts with leading manufacturers in the automotive and robotics industries. It has 300+ customers and has commercial partners including Ford, Nikon, and Hyundai.
Latest Status: started trading as Nasdaq:VLDR on Aug 20, 2020
Transaction Structure: $117M from SPAC Graf Industrial and $150M from PIPE
Valuation: ~$1.6B EV; 2.3x 2024E Revenue (7.04x 2024E Revenue discounted to present value)
Benchmarking: Nvidia, Xilinx, Mobileye, Ambarella, Nikola, Tesla, Plug Power, Ballard, Melexis, Cree
Stage of Development:
- 300+ customers with $570M of cumulative revenue since 2010
- 40,000 units delivered to customers in the applications of ADAS, AV, delivery, mapping, robotics & industrial, shuttles and smart city
- 16 signed / awarded multi-year contracts worth $800M+ revenue through 2024
QuantumScape Corporation
Founded: 2010, San Jose, CA
Business Description: QuantumScape is a solid-state battery provider for electric vehicles. Its Lithium-metal-based battery uses solid ceramic electrolytes compared to conventional Lithium-ion (Li-ion) battery with liquid electrolytes. It also eliminates the need for an anode, allowing the battery to charge more quickly — up to 80% capacity in just 15 minutes. Also, its energy density is higher, exceeding 400 watt-hours per kilogram (Wh/kg), which far surpasses 250 Wh/kg for the best current Li-ion batteries.
Development of next-gen battery for EVs is very capital-extensive, and there are very few players leading this market. However, the performance of traditional Li-ion batteries is plateauing in the areas of safety, energy density and deep charge and life cycle; and breakthroughs in emerging technologies are being called for. In the long term, significant market opportunities will open for next-gen battery technologies as they are nearing commercial readiness.
Latest Status: announced on Sep 3, 2020, QuantumScape will go through a reverse merger with Kensington to make a public debut; after approved by shareholders, the company will be publicly traded on Nasdaq under the ticker QS (estimated to close by end of 2020)
Transaction Structure: $230M from SPAC Kensington and $500M of PIPE from Fidelity Management & Research and Janus Henderson Investors
Valuation: $3,321M EV; for comparison, the company also shows a valuation range of $8,985–16,173M, based on 5.0–9.0x 2028E Revenue discounted back 7 years at 20%, offering investors a view of the upside potential to the current post-money EV
Benchmarking: Tesla, CATL, Nio
Stage of Development:
- Joint venture development with Volkswagen for mass production of solid-state battery for the automaker
- 1GWh factory production validation and SOP in 2024
- 20GWh factory production validation and SOP in 2026
Romeo Systems, Inc.
Founded: 2016, Vernon, CA
Business Description: Romeo designs and makes energy-dense, commercially available Li-ion battery modules and packs for electric vehicles. They mainly supply to commercial truck manufacturers in North America and Europe. With energy density 20–30% higher than the rest, the batteries can support a longer range for the vehicles. The products come with a built-in battery management system, and are designed to be chemistry-agnostic and support both air-cooled and liquid-cooled.
Latest Status: announced on Oct 2, 2020, Romeo will go through a reverse merger with RMG to make a public debut; after approved by shareholders, the company will be publicly traded on NYSE under the ticker RMO (estimated to close by end of 2020)
Transaction Structure: $234M from SPAC RMG and $150M of PIPE from The Heritage Group (Indiana) and Republic Services
Valuation: $993M EV; 1.3x 2023E Revenue EV
Benchmarking: Nikola, Tesla, Hyliion, Lordstown, Canoo, QuantumScape
Stage of Development:
- BorgWarner invested $50M in Romeo’s capital raise in 2019; the two also formed a strategic joint venture to pursue opportunities in light vehicles and in medium and heavy duty commercial vehicles outside of North America
- Romeo also formed a battery reuse and recycling facility with another earlier investor of theirs, Heritage, a waste management solutions provider; their strategic partnership also entails a contract of 500 diesel trucks to be converted by Romeo
- Rigorous cell selection process: over 200 cells tested from 10 suppliers; selected LG Chem and Samsung as cell suppliers
- 20–30% more energy density than same-size competitor packs
- Proprietary factory of 7GWh manufacturing capacity
- $310M+ contracted revenue from customers including Green Power, Lightning Systems and Phoenix Motors
