The Electric-Vehicle Unicorn Crash

Cheap credit and political subsidies led startups to let their ambitions get ahead of market realities

By Allysia Finley of The WSJ. WSJ editorial. Excerpts:

"Consider the problems now befalling China, the world leader in electric-vehicle production and exports. Beijing has set aggressive production quotas for car makers and provided generous subsidies for buyers. China’s annual electric-vehicle production capacity has ballooned to 5.7 million vehicles—for comparison, 434,879 electric vehicles were sold in the U.S. last year—and is expected to hit 15 million in a couple of years.

Yet concerns are mounting in China about oversupply of what the country calls new energy vehicles. “Reckless investments and disorderly efforts can be seen in the country’s NEV industry,” Lin Nianxiu, vice chairman of the National Development and Reform Commission, warned in March. “We have too many EV firms,” Xiao Yaqing, minister of industry and information technology, said in September.

Some 200 Chinese EV startups have launched in the chase for government subsidies. Many have struggled to scale up production, and some have gone bankrupt. Foreign auto makers, possibly excepting Tesla, are struggling to sell electric vehicles in a saturated Chinese market. China’s problem is twofold: too much investment chasing too little demand, and too many companies with too little profit. The U.S. is starting to see the same problems.

Almost all EV startups went public by merging with SPACs, or special-purpose acquisition companies. That allowed them to avoid required financial disclosures and make exceedingly rosy business projections. The Federal Reserve encouraged risky investing by holding down short- and long-term interest rates. Easy money provided an enormous subsidy. But now the cost of capital is rising as the Fed tightens, and so are production costs as prices for lithium, nickel and cobalt surge. Rivian recently increased the price of its pickup truck by $12,000, to $79,500, to offset rising costs."

"Difficulties raising capital and logistic snarls are causing unicorns to delay vehicle launches and slash production projections. As a result, their stock prices have plunged. Shares in Rivian, Canoo, Nikola, Mullen Automotive, Lordstown and Workhorse Group are trading 80% to 95% below their peaks."

"electric cars are still on average 35% more expensive than gas-powered ones, and the price disparity is likely to increase as demand for critical minerals grows.

Most EVs today can’t go more than 250 miles on a charge (and less in cold weather). Drivers worry for good reason that they’ll run out of juice on the road. President Biden hopes to alleviate this so-called range anxiety by subsidizing a nationwide network of charging stations. This won’t solve the problem. Public charging stations are nowhere more ubiquitous than in California’s Bay Area. But a recent study found that less than three-quarters of charging stations worked. In many cases the plugs, screens or payment systems were broken, or connector cables weren’t long enough to reach the car’s port. Imagine if 25% of the nation’s gasoline stations weren’t working and drivers didn’t know until they got out of the car whether they’d be able to fill up."