The past year has proven an absolute bloodbath for the once high-flying electric vehicle industry. The brutal price war initiated by Tesla CEO Elon Musk to cement his first-mover dominance combined with soaring inflation erasing consumer demand have sparked a crisis of confidence among investors. The latest corporate casualty is French automaker Renault, which just scrapped its much-hyped plans to spin off and list its EV unit Ampere in an initial public offering (IPO).
In a remarkably candid admission, Renault Group CEO Luca de Meo told reporters that plowing ahead with the IPO made little sense given the distinctly frigid Wall Street reception towards the EV sector currently. “It’s one of the elements,” he acknowledged, signaling that valuations on offer made thefloat financially unviable.
Renault says it has sufficient balance sheet capacity to internally finance Ampere’s operations until its targeted breakeven in 2025, including managing cash burn from the hotly anticipated launch of the new electric Renault 5 subcompact model this fall. The iconic nameplate carries tremendous legacy value which the company hopes to leverage to juice demand.
However, de Meo made barely any effort to conceal his scorn at the extreme investor fickleness which has laid waste to the once red-hot sector. “There is a [pendulum] swing to the other side for EVs, which I consider honestly pretty childish,” he railed.
“Three years ago everyone was telling us if we would not go 100% EV we would be a bunch of zombies in ten years and now everyone is telling us we shouldn’t.”
The radical sentiment shift essentially means it would have been near-impossible to attain anything close to a desirable valuation in the IPO. So now Renault will instead open talks with alliance partners Nissan and Mitsubishi about potential direct capital injections into Ampere.
The two Asian automakers had earlier conveyed interest in acquiring equity stakes in Ampere as part of Renault’s IPO plans. So bilateral investment negotiations offer the next best chance to fund Ampere’s capacity expansion while also further cementing the Renault-Nissan-Mitsubishi alliance.
And Renault is hardly alone in having to beat a humiliating retreat on its EV listing plans until market dynamics improve. Speculation has mounted that Volkswagen Group could be the next in line to ditch proposed IPO plans for its EV battery unit PowerCo.
While Volkswagen firmly denied any definite decision has been taken yet, it did concede in a statement that “The ramp-up of fully-electric vehicles is steady but not as steep as expected.”
Essentially, the entire investment rationale surrounding blistering EV growth over the next decade fueling a mass reallocation of auto sector capitalizations now lies in tatters. Governments worldwide have been forced to slash subsidies and incentives that spawned the EV frenzy amid runaway inflation and fiscal pressures. Meanwhile, the stimulus-fueled everything bubble has decisively popped over the past year.
One of the most stunning symbols capturing investor despair is Swedish luxury EV startup Polestar. Exactly a year back in September 2021, at the frothy market peak it announced plans to list on the Nasdaq via a merger with a Special Purpose Acquisition Company (SPAC).
The actual Polestar listing finally occurred just last September amid a decidedly more somber economic backdrop. And since then, its shares have utterly collapsed as a far cry from the hype expected. Last week, Polestar revealed it would be laying off around 450 employees, nearly 15% of its workforce, as it scrambles to cover a massive $1.3 billion funding deficit.
And arguably no one has done more to single-handedly torpedo industry sentiment than Elon Musk through his uncontrolled Twitter rants. Over the past year, he has launched wave after wave of unprecedented price cuts to boost lagging Tesla demand – severely eroding industry margins. Among his most prominent casualties was Hertz, which filed for bankruptcy last year right after placing a blockbuster 100,000 vehicle order from Tesla.
Yet Renault CEO Luca de Meo remains remarkably sanguine about having to pull the Ampere IPO. He argues it focused vital attention on Renault’s long-term electric transition plans and enabled more aggressive investments. While sentiment may wax and wane, de Meo firmly reiterated his belief the larger EV adoption trend remains secular amid increasing climate change pressures.
So legacy automakers have no choice but to ignore the short-term noise and keep building out their EV capabilities despite recent stock shocks. Because as de Meo succinctly put it – the EV train has already left the station for good. There is no turning back now for the auto industry at large.
