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EV Makers Lucid, Nikola Plan for Stock Sales as Time Runs Out on Cash Burn

·3 min read

(Bloomberg) -- It was probably a case of now or never for the the latest pair of electric vehicle makers to announce fundraising plans as they burn through cash.

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On Tuesday, Nikola Corp. said it will sell as much as $400 million in an at-the-market offering, one day after peer Lucid Group Inc. filed to sell up to $8 billion in mixed securities, including common stock. Both shares fell on the news, with Nikola hitting a six-week low and Lucid reaching the lowest since May.

The two announcements came even as traders shy away from cash-hungry firms amid the prospect of higher interest rates. That juxtaposition may indicate the companies have little choice, with some expecting market conditions to deteriorate next year as the economy slows and potentially dips into recession.

“There is no question that it is a tough time to raise money for companies that have little or no earnings,” Miller Tabak + Co. chief market strategist Matthew Maley said in an interview. “However if we’re headed into a recession, it’s going to be even harder for them in the future. If they don’t try to raise the money now, they might not ever be able to do it.”

Lucid burned through more cash than expected in the first half of the year, a trend that probably continued into the second semester as it steps up investment, according to Ali Faghri, an analyst at Guggenheim Securities. So while management has said they have a cash runway into 2023, pressure in mounting to shore up reserves, he said.

In an interview with Bloomberg, a spokesperson for Lucid noted that the company has not yet started to sell shares.

“The shelf registration is intended to provide greater flexibility to raise additional money in the future,” spokesperson Nat Lingo said. “We did not announce any immediate plans to sell any new stock.”

A spokesperson for Nikola declined to comment.

With their filings now in place, both Lucid and Nikola can pick their spots to raise cash over the next few months, or spread out the sales as a hedge against volatile market swings.

Read more: Nikola Adds to Would-Be Issuers Dragging Their Feet

Any glimpse of investor interest may now be enough to trigger the share sales.

“You’ve had a moment of market stability, so I think it’s prudent for the cash burning EV players to enhance their liquidity needs so they can carry out strategic plans without concern of future market conditions,” Bloomberg Intelligence analyst Joel Levington said in an interview

Electric vehicle startups like Lucid, Nikola and Rivian Automotive Inc. have found themselves in a tough spot this year as the automotive supply chain snarls worsened and prices of battery raw materials surged. Rivian earlier this year said it will cut jobs as a volatile economy has made it harder to raise money, while Lucid halved production targets for 2022.

The debate around Lucid now turns to how dilutive its plan will be for shareholders, Redburn analyst Charles Coldicott said in an interview.

“I think it’s not really a question of whether now is a good time to raise money or not,” he said. “I think they have no choice in the matter because they are on track to run out of money next year -- we think by about the middle of the year. So they simply have to raise cash.”

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