Our dear friend and EV pioneer Michael Perschke joins David and James as they discuss the ins and outs of SPACs. Whether they're a steadfast part of the future, whether they're living out their final moments...and everything in between. Take a seat and join our discussion as we contemplate what the future in the industry holds (or lacks) for SPACs.
Our dear friend and EV pioneer Michael Perschke joins David and James as they discuss the ins and outs of SPACs. Whether they're a steadfast part of the future, whether they're living out their final moments...and everything in between. Take a seat and join our discussion as we contemplate what the future in the industry holds (or lacks) for SPACs.
Hello everyone, and welcome to a new episode of Byte Off. I'm quite excited about this one because it's a topic we've been discussing for a while. And with me is my co host, James Carter. Hello, James, how you doing?
James:Hi, David. Good to see you again man.
David:With that we have a friend of ours that as we said, we've been discussing some of the ups and downs of technology investment and new trends in the industry. Michael pastor, how you doing Michael?
Michael:I, David, James, longtime new year. I'm doing very fine.
David:So today what we're going to talk about is the SPACs, right? We are having this conversation for a while now to understand the race and it's a fall in the SPACs or it's not a fall in the SPACs or what's going to happen in the future. So what do you guys think about the whole journey? We've been going through the SPACs since basically early 2020
James:Well, you know what, David it's been very interesting. You know, I think the first one that really sparked this off was Nikola you remember you remember that that Trevor Milton guy who you know was was all BS? And you know, not much substance? Yeah, we all remember him and he SPAC the company for several billion dollars. And, and, you know, I think that really kicked off people's interest in finding new financing for companies that required upfront capital well, before any sort of revenue started to come in and, and that it was crazy. The rush that came in the two years after that, or not, not even that maybe even 18 months after that, that really, we saw so much money flow out and into companies really would not a huge and very good business plan. Not really there. So I think that's the starting point. I'd like to start with Michael, what you've been seeing?
Michael:No, I agree. I think Nicola was the first really proper SPAC in my wider industry in which I really got aware of what a SPAC can do to a company. I know, I think at the peak, it was worth 36 billion US dollars for a company where later we found out within the amount of a truckload could go up a hill just down the hill. And we realized how little substance was behind such an overhyped story. So I've been probably in that time I've been this is not my first assignment, I was still at Automobili Pininfarina raising money in a more normal way for ABC rounds. And I wasn't the investment side. And now with Quantron, we tried to be a much more real kind of a Nicola for Europe. I've been seeing all that. And in the last 12 months where our business, specifically at Quantron, we had so many SPAC proposals on the table. And obviously, I don't want to do it simply because not maybe because the technical process of a SPAC is wrong. But the application is wrong. It's like you know, owning an AK 47, you can use it peacefully or you can use it the wrong way. And I think the technique of a SPAC per se is not bad, because for the listing company, it allows you to short track a few of the hurdles, but how it was applied and how easy you could place a company in the market by having amazing presentation and very gifted presenters and having a clean model some CGI or CAD data and showing amazing business models. I think that's what kind of scared me how easy it was it reminded me a little bit of a.com bubble 1998 to 2000. And therefore I find it absolutely correct that the FCC at one point had to step in. Because I think for companies who have a credible business model, those black sheeps actually spoil the market. And now good credible companies with good technology and substance have to find the most of his overhyped under substantiated companies, which got floated and today are trading at 10 to 20% of a peak valuation. So I think that's the good side, there was a lot of money available. The good side, a lot of companies got the money the bad side, a lot of companies didn't deliver the promise. Because in a way, it was too easy. And I think therefore, I think I take it as a as a pinch of salt. And I personally think what we're gonna see after first of October is a much more realistic market. And I think the last two years was highly overheated. From my personal point of view.
James:Yeah. And Michael, you can see, well, you know, we're seeing companies that were suddenly being valued at $20 billion for no product, but they were looking like they were going to have out for at least two years and, you know, some management in there that didn't really have a lot of automotive experience. And they didn't really have a lot of, you know, much of a business plan behind, you know, some beautiful drawings and you could see it and one of the things I used to do over the last couple of years is really look for some of the more details in the technology, you know, looking at the patents, where are the technical drawings? Where's that stuff that shows that they've done a lot of work into making it happen? And you look at some of these guys like, CANoe where was any of that stuff? There were some other like that. What what did you say, Michael in that time?
Michael:No, I totally agree. And I think there were some credible guys. I think one of the credible SPACs is Lucid. I think Lucid had a product. I know the lucid team ever since 2017. Peter Rawlinson, an amazing engineer, great track record, great design; that Company deserves to be on the market because they were ready in a sense where we're six to 12 months before launch, but physically the things were where you could touch and feel it so that I think the positive for white chiefs. I totally agree with you. You mentioned CANoe, or have high regards for - but I think a lot of other people in that ecosystem question mark and all our join friend Roger Atkinson, I think he's waiting since the last 12 months to get a real right on an arrival until they keep on postponing his rights. I don't know if he finally got one. So a lot of companies are did play with a lot of smoke and mirrors. As I said, the thing I saw also from an investor point of view, I was on the board of QB tech in Spain, small company, really tangible they built for a Junior rallycross, they built for Souza, but they are run by engineers who are not good in selling themselves to a stock market. And then you have others who are good at selling themselves but under delivering, think. What I see and I predict is that there's still money, but it will be much more difficult to access. And any company who today doesn't have a 24 month runway on cash, it would be very difficult to get access to capital in that sector not because the companies who are now want to have raised money are bad, it's because others spoil the market, the SPAC is gonna be completely different by first of October with all the irregularities coming in place, it's going to be much more difficult, the PE and VC sector are cooling off and get more skeptical. So I think we will see that now good ideas will have, which are just concepts will have a very difficult face to finding money. Good companies for substance will still have an ability if they're maximum 12 months away from revenue but have real products. And I think also the labor market will slightly cool off again, because I think, there was no skills anymore available somewhere between Los Angeles and Moscow because all good engineers been hired away and in India or China. So I think we see more real thing. The bad thing is we have less challenges for the traditional OEMs because some of the better SPACs were challenging the OEMs. So you will probably see much more corporate venturing, the corporates will buy cheaply into good ideas, because they are the only ones who really want these ideas and now can get them at a much cheaper price. Because the ideas alone will not take you to the market. But as a corporate, you could value them in your core business, autonomously or whatever it is. So I think we will see a shift for sure. And probably it's a shift to more quality, but it's probably also much harder for these spin offs from universities or others to get over the first hump. The seed funding is easy that normally works with friends and families and your personal network be a round already becomes difficult. We're just closing an a round and we are already post revenue we will receive 240 40 million revenue next year 100 million plus but even closing an a round in these days is not that easy. But getting from an E round. anywhere close to a C or D round you saw remarks just today announced with 500 million funding. But when I've been following GreenMAX for a long time I was the first really industrial large client for for platform sharing. This guy's gonna make it a rematch is gonna make it we as content, we're gonna make it I think a couple of others. I see who's going to make it. But I think we will reduce quantity and improve quality. That's very my very humble assessment.
David:So what do you think is gonna happen with the companies as being a SPAC? You guys think that it's gonna be acquired some of these companies by tier ones and OEMs?
Michael:Well, I mean, if I jump ahead, but James has for sure, a more global view. I think you will see companies where I see very difficult we're gonna survive at somebody like Lordstown. I mean, we've got Foxconn in the last minute, probably they might go to make their first product. I think if without being a stock market manipulator, if only comes wants to buy a team rather than building it up inside Apple when a natural thing would be maybe buying assets or the team from CANoe because that might be down his lie to build a team to build cars for apple but I think there are a couple of companies who not gonna make it who don't have a real value proposition, I know there's a company here in Munich, they're really good guys. Sono Motors, but I think they're never going to make money on their car, maybe if they crack it with a solar panel approach. So I think you have to be laser sharp for the next 24 months to have something which attracts somebody's interest being at an energy company being at maybe sovereign wealth fund who wants to buy the technology and build a local industry like Egypt or Saudi Arabia. But if you have nothing, which is cutting edge, which is very different, which is unique, I mean, if you read a SPAC proposal and and James can add or challenge me, and somebody writes that, you know, with the money they make on the first product, they can organically financing the full product portfolio, then that's a lie, but doesn't work in the auto industry, you need normally two to three products. And you need to be at 70% of your second or even third product that the portfolio starts churning, and you generate profits, so you can refinance further developments. If somebody thinks with one product, you can build a whole portfolio and you don't need money at all anymore, which I read at least in three, four SPAC papers. That's just a lie. It doesn't work in the industry, there's still a heavy capex industry. And so I think those people who work with really very pink glasses, and look to the future very, very optimistic with endless money being available. And nobody catches you for the lies of yesterday and still gives you a lot of trust for tomorrow. I think all these guys get caught now with a finger in the honeypot. And the guys sorry, what you said in your SPAC and what you're doing is so fundamentally wrong. And when we don't even talk on Yahoo, you go on any of the ticker symbols, the first 10 messages are normally US class eight action lawsuits of lawyers, just searching of immature companies who went SPAC and didn't understand the SEC rules, reporting rules, ad hoc rules, and how serious investors take kind of a perceived fraud. I don't even say that people did it on purpose. But investors, especially in the US are very, very to the point of what did you say, what did you deliver? And can you catch somebody having said something fundamentally wrong knowingly? So I think I personally think David, we will see a lot of exits in one way or the other takeovers, mergers, asset deals. Yeah. And chapter 11s probably
James:Yeah, I agree with that. I think there's something also that has fundamentally happened, Michael to is that just post SPAC bubble, we've come into supply chain XT, so even those, you know, even those great companies like lucid like rivian, although rivian didnt spite they did an IPO. However, it's really worth noting that cream of the crop are really, really struggling with, you know, really getting up and actually making anything. And, you know, when we have a look at, you know, Faraday Future, CANoe that you know, they all at that crowd, they haven't even got products out yet. And yet these great companies are really, really struggling. How on earth are those little companies going to survive? You know, how was Lordstown gonna survive? For goodness sake? I know, they just got a bunch of cash, but from selling that plant they bought from GM, but how are they going to survive? I don't know.
Michael:Yeah, and James, I mean, you're totally right in the very hunky dory beautiful times. Companies love for ratio or Bosch or so had a strategy to go out and do some business with his innovative companies to learn from and they even knew the had a, a fallout rate of maybe 50% but they still put that in the strategy because we said from day one will be our company we can really learn from and then we sell that knowledge back to our classical OEMs. Now the commercial vehicle sector I'm deeply involved in when you talk about EXUS, you have basically globally two or three suppliers if you want to have EXUS from Ellison or Meritor, which is now comments. You know, if you come as a small player and you have against you Daimler or Volvo or Scania, if you don't have a lot of credibility and trust and a good relationship you might even not get A samples B samples or prototype samples, because they say we are anyways sold out or take hydrogen fueling tanks, take batteries cell systems take you know if you want to be an old build an autonomous car, you know all the sensors suppliers, they can they cannot satisfy enough the demand of a core OEM so I think if if very you don't have an E team and supply chain and purchasing and relationships, it's going to be very difficult. We will see a scarcity of batteries for the next probably 24 to 46 months. I mean, if your CTL Why the heck would you do a deal with an doubtful small SPAC financially fragile company if you can sell all your battery cells to BMW, Audi, GM Ford. So I totally agree cooling off of the economy calling off of a couple of market constraints already on the supply chain. And then literally, all new incumbents, even the best funded new player in the market Rivian with 10 point 5 billion pre listing funding, didn't manage one single ramp up on time and on quality. So I always say building, developing a single vehicle is already a challenge, electric or hydrogen, but building an entire company working with after sales, spare parts, the whole ecosystem, that's a stunt, which very few companies have managed it till date, without major bumps on the road, I just read, I don't know, in automotive news, that Rivian again, laid off chief of production or something like that. So you know, the churn rate is also excessive. And we know all that the Elon, it's challenging, but even the newer players, so the robustness of building such a complex thing, like an electric car is not to be honest.
James:And you know what, Michael, we should not forget that from IPO to stable profitability. Tesla took 10 years. And I think that, you know, people are making this assumption that all these new players are coming into place, and they gotta be profitable within one year, and it doesn't happen.
David:I think that was a problem. I think it's all in the market, James. Right. We've all just statements and what Michael was saying, I think one of the problems is, I think one of the problems that I see was a lot of people that were not understanding that - I always said that you need to understand the history of the automotive industry, and the supply chains of the automotive industry to understand if you are creating a product or not. And I think a lot of the people who was in this SPACs, it was financial people that didn't understand how to building a product, they understanding consumer electronic products, but they're not understanding industrial products that is a little bit more complex, right. And basically, we've seen that over and over and over and over. I mean, it's just not we're talking about what we're discussing. Now. The production level is the same thing with Niyo, the same thing with everybody else that, basically expecting to have and I see a lot some automotive companies that wanted to build things. And they come to you said, from now to actually have a full week of production 20,000 cars in three years. This is not even feasible or possible to do, doesn't matter how much money you have, right.
Michael:David Yyou know what normally an OEM classical OEM BMW Audi Volkswagen says its biggest risks and the highest probability to fail. And the proven models are Spartanburg and Tuscaloosa. It's a new team. It's a new product at a new site with new suppliers. This is a maximum probability to fail. And when it's BMW and Spartanburg, Mercedes, M class and Tuscaloosa, all the big OEMs, who do that every day, still had their struggles, all the new players did all at once. They need to build a greenfield factory, they need to build a greenfield factory, they have brand new suppliers, they have a brand new team and they have a brand new product. So that they fail, it's not a surprise, because even an established OEM has challenges to make that work. So I think coming back to at least for Rivian listing brochure was proper. It said, we don't think we don't see that we make money short term. We don't even know if we make money long term in that business model for the time being, at least they've been honest on that part. Because they knew it's heavy capex and it's a very long run. And I totally agree Elan took 10 years, he made a little bit of money of trading co2 certificates with FCA. And then he came to this inflection point of really scale economy. And that happened above a million cars a year with 3 Giga factories. So I think none of the incumbents we talk about has the inflection point of 1 million vehicles anywhere soon in the next five years probably so we need to accept a cash burn. And then you need to see how long the stock market willing to accept that cash burn and the current climax. A price on sales is a nice multiple, but the average industry who still works on price on earnings. So if you have no earnings, then it will be very difficult for investment funds in the long run to substantiate the investment until unless you know you have such cutting edge technology like in take the biopharma sector like Moderna and Biotech. You know, they have a long cash burn, the industry knows at some point they have a right product and money goes through the roof. At the car industry, you don't have a COVID scenario where suddenly you're doubling tripling or quadrupling your sales in like in 12 months. It's a more scalable business model step by step so I think it's gonna be challenged. I like the industry, because if you build substance, there's a chance for a breakthrough because there's also a high chance for a lot of ShakeOut. And still, some companies with substance, some cutting edge technologies still can challenge the big players, we just have some discussions with the big OEMs in our sector, you can still challenge them. But I agree with James, you need to have a right team. Ideally, a team who has done the job before you don't want to hire the 19 year old football scorer, you want Levandowski in your team, you want a lawyer in your team? You know, you want these guys, the Navy SEALs or Purple Hearts have done that many times? And who know exactly what are they doing and who can deliver on time on budget on quality. If you make that I think the analyst will still give you credit points. But if you over promise and under deliver constantly over a longer period, which happened to our dear friend, Trevor, at some point, somebody's going to lose patience, whether it's the board or the investors for stakeholders, at some point, somebody say no, this doesn't make sense. I think this is where you see probably a company like Hanoo being now on the edge some of the Lordstowns. And that's where you see a high churn rate. Also on the management side.
James:You know, the other interesting thing, Michael, that we saw was, as we saw the rise of the SPACs, we saw the rise of the investigators looking and digging into these companies to see actually what they had. And you know, we saw Hindenburg research. And then there's three or four others out there that have been publishing stuff. And some of them publish stuff that's not very good. And the companies really hadn't been here at all. I know, there was one company that did something for too simple and, you know, didn't really stick but there was, you know, take Hindenburg who took down both Lordstown and Nikola, what do you think of you know, people starting to poke around post-SPAC? What impact has that had?
Michael:No, I totally agree. I mean, you have a short sellers. I think the short sellers have, of course, their very own agenda. So you need to take their research reports, obviously, with a pinch of salt, because it's not totally objective. They do these reports with a certain intention, even if the report by itself might be correct. But the intention is to bring the share price down by it and make a lot of money. But yes, you need to be aware, as I said, we have a lot of SPAC proposals on the table. Also for us, my investors. Let's let's do an essay guys, we are not ready for that SEC reporting ERP checks and balances governance for ice principles and all that accompany who is doing a US stock listing. They always think that once you're listed, the job is done. That's bullshit. It's like the first kilometer of a marathon. The pain comes after 20, 30 kilometers. That's when you say investigators come you know, you need to file your reports. Yeah, yeah. And why pIans PW is somebody needs to audit your accounts. The banks will ask you, as long as you have equity, it's great. But at some point, you want depth if you want to have depth, do you need to file your balance sheets, you need to, you know, disclose things? So I said, is it a surprise? No, I mean, everybody's doing this business for hundreds of years to around proper companies. So when you say the investigators of the Hindenburg research are coming, you know, every smoke or some fire, right. So an investigator won't find something until unless there is something to be found. Now it can be, let's say amplify it out of proportion. But you have a clean sheet and everything is fine. You shouldn't be too much scared of Hindenburg research of the universe. But I think everybody goes to the stock market, especially in the US context, needs to be aware that law firms make all of their money by catching people with a finger on the honeypot. If there's nothing to be caught. You don't need to be scared. But if there's something to be caught, then the system today is so transparent from Instagram to short sellers to God knows, I mean, we're youngsters who are developing software, which can track airplanes and boats. And they can tell you exactly where your private plane is. Or, you know, if somebody is permanently using the company airplane to fly to Hawaii and to Bermudas, which things get caught today. So wherever you are spec wherever you are listed company or whatever, as long as not your private own money and your private own company, but other stakeholders who will be watching you. So I would say it's also good. I think checks and balances are important and good because at the end of the day, the capital market is still based on trust and checks and balances. And so I think whatever checks and balances are out there. They're out there for a reason.
David:So I think we being as we said at the beginning, we were discussing this for a while, right or since we are starting with the SPAC with Nicola in several different conversations. We understand as well the challenge and the positive of this particular SPACs as well, all through being going through the whole journey, what do you think is your kind of vision of the journey? I mean for you again, Michael, what is your thing? That is the the concluding statement that you want to see of this? And what is the future that you're seeing ahead of us on these two sectors on basically mobility.
Michael:As I make a humoristic statement, I think the times of the ocean 11 stans over, I think you can walk the bank without consequences. But that's more of a humoristic side, I think on the more serious notes, I think we will see a cool off, but will lead to a shake out when we come back to a normalization. And when I think then we will have a renaissance of new technology, maybe in a more mature capital market environment with more mature companies, so at least the - 1000s of years. It's called the Darwinistic approach. And yeah, it's survival of the fittest. So I think both companies are ready for that, which are well funded, well run the solid business models, good leadership, we're going to make it I mean, if you look at what how lucid survived, I mean, they came out of Phoenix out of the ashes, because the teams stick together, they believed in the vision, but did everything to survive until they found that one investor with BIF, who said, yeah, you guys are worth to invest in, and they made it but they had the ability to go through a serious crisis, I think that's where my take is, these mercenaries you buy together, because the mission is just to make quick money. It's not gonna hold you know, it's like sending mercenaries into a war. You see the guys in Ukraine, they defend their country, because they have a pack mission, the mission is to survive, because it's like they're there so if you have companies who are built on a mission, on a purpose with a strong team, they're gonna survive, some of the good ones going to survive this cool off those companies who just came in for a quick buck for hunky dory ideas with no substance I don't foresee they're gonna make the next 12 months, especially if PE and VC money is gone, SPAC money is gone. Both investors who will still invest are also investors, very selective, very knowledgeable, and they invest because they stay invested. They're not invested who come in with cheap warrants. And basically, at this time of SPAC, already took all the money out and are left with no risks. I think most investors who invest now invest for medium long term, and therefore will be much more for due diligence. So I think it's, it's a selective process. Good, bad. But I think James, we've been around for a while, we've seen that a few times, this industry challenges have been at a company which will get very famous because of some diesel engine problems. They survived despite some heavy fines, because there was still a lot of good substance there, great brands, great market coverage, good leadership, the fair bit is coming in appropriate moment taking the challenge and making something out of it. So I think it's, we're gonna see a shakeout, but that's, I think it's good. It's good to get the good quality survivors and rest and they come out as winners out of a crisis.
James:Yeah, I agree. That's exactly what's gonna happen is, you know, Musk said something very interesting the other day is that he wanted recession, he believed that there was too much money around and he wanted a shakeout and, you know, I'm not sure if I would ever want to say I want to bring on recession, but he does have a point. But, you know, tightening up the money supply will really, you know, start to show which companies are, are the solid ones. You know, at the end of the day, I think that's something that we all want.
Michael:And I think there's a there's not an exactly comparison, but if you look how many EV ventures have been formed in China, and how many made it really to a solid business model you have now li Otto, XPeng, and a few others. But there were four or 500 companies registered and trying to meet electric vehicles. Those who made it in China now are the good ones. I mean, so we have too little visibility what happened to all the others they had not their SPACs but they had government funds and regional funds and special funds and entrepreneur money. So that also made it and I'm a big fan of Li Otto and especially XPeng, I think Xpeng is a is a great company, - is not as good as - but product substance is great. So I think that has shown that this Darwinistic approach actually worked and I think the Chinese government said if we get to folks buying groups out of that we are good to go.
David:Okay guys, thank you very much for your approach and your views of the market as well and yesterday supporters with Byte Off, Michael as always a pleasure to be with you and hear your knowledge as well. So we have closed episodes as well. And then basically I hope like all of our audience as well actually keep listen to us, we will try to bring more new and exciting topics during the next episode of the podcast. Thank you very much Michael, for your time and your knowledge. It's a pleasure always to bring you to hear your your thoughts. And thanks, James for actually co hosting with me and then hopefully we can keep doing these fun sessions together. So thank you very much for you both and then we will see all our audience soon. Thank you very much. Bye bye all