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Green SPACs and the valley of death

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By Gabriela Herculano

· 7 min read

The US is going through a green manufacturing revival but a complex macro environment poses a lot of challenges

While we are observing an industrial green revival in the US, with nearly 80 major clean energy manufacturing facilities, representing over $500 billion in investments, having been announced since the US Senate approved the IRA Bill, challenges abound. These 80 new manufacturing facilities are strategic investments that demonstrate confidence in the long-term prospects of decarbonization and some are part of the capex plans of large companies. For example, South Korean colossal LG Energy Solution announced a fast expansion in the US. Before the IRA, it operated a 5 GWh battery manufacturing plant in Michigan. Now it plans to increase that capacity by 43 GWh with a new facility in Arizona that will start operations in 2025. Moreover, LG Energy is developing EV battery plants in JVs with OEMs, including a 30 GWh plant in Georgia in partnership with Hyundai and 140 GWh in Ohio, Michigan and Tennessee in partnership with GM. A Southeast “battery belt” is emerging.

Very differently to the large balance sheets of global conglomerates, new green pure players, pre-profitability, and in many cases, pre-commercialization are going through aggressive investment plans while relying on the cash positions currently at hand. There is now much more uncertainty about their ability to raise either equity or debt, as equity capital markets are currently struggling to reward green growth names with long-duration strategies. Debt capital markets are also struggling to fund growth stories in a market where the risk-free rates are almost at 4.5% for the ten-year US treasury. This perfect storm caused the recent debacle of a pure player in the electric transit space, a segment receiving a lot of support from the Biden administration.

The tailwind behind the electrification of public transportation in the US could not be stronger

In September last year, the US had ca. 5,480 battery electric buses in operation, up 66% from September 2021. That is still less than 10% of all the 60,000 transit buses operated by the over 1,000 transit agencies across the US. The Biden administration is determined to accelerate the decarbonization of public transportation.

In June the US Department of Transportation awarded $1.7 billion in grants for the decarbonization of buses as set out by the 2021 Bipartisan Infrastructure Law. More than 1,700 US-made low-emission buses, of which the vast majority will be electric, will be funded by the grant. As it turned out, demand was much higher than the $1.7 billion, as the Federal Transit Administration received over $8.7 billion in eligible proposals. To be eligible, the e-buses must be manufactured in America. The largest player in the space, Chinese BYD (that does have some manufacturing capacity in the US) has sold over 60,000 electric buses worldwide, more than 45 times the number of e-buses ever produced by Proterra.

The recent struggles of Proterra

On August 8th, the US EV player Proterra filed for Chapter 11. The largest US electric bus maker, also a supplier of drivetrains and batteries for commercial vehicles, has behind it the tailwinds from a global trend of electrification of commercial and public transport, plus the support of the Biden administration’s green policy under the now one year old Inflation Reduction Act (IRA). President Biden actually was given a virtual tour of the company’s East Coast facility in Greenville in 2021. Proterra has sold over 1,300 electric buses since it started operations in 2004. Riding the strong green rally of 2020, the company listed via a SPAC in 2021 (a Special Purpose Acquisition Company, also known as “blank check” created with the sole purpose of acquiring and merging with a target firm, with the combined entity listing its shares), at a valuation of $1.6 billion, when $640 million of new capital was raised. Proterra's buses are used by transit agencies in Los Angeles, New York City, Seattle, San Francisco, and Philadelphia. US Universities, airports and private companies have also acquired Proterra buses, and the company last quarter had a book order of over $1 billion. Proterra was not a pre-revenue startup, having booked almost US$80 million of sales in 1Q23. However, it has failed to post positive operating margins since it went public. In other words, Proterra was spending more money producing the electric buses than it could sell them for.

Proterra was working towards accelerating its manufacturing capacity with the intention of grabbing a material share of the US public transport electrification market. Elon Musk openly talked about Tesla going through “manufacturing hell” the company went through back in 2017 when scaling up the Model 3 production. Proterra had to provide a level of customization in its buses, to comply with the requirements of the transit agencies, which added complexities to manufacturing, reducing the ability to scale and adding to working capital needs. Proterra did not manage to weather the storm and many things that could go wrong did go wrong. Although the Chapter 11 filing came as a surprise, the struggle of Proterra was noticeable, as is that of other green companies that went public via SPACs. Before getting into the alarming figures for the failing green SPACs, it is important to highlight the positive momentum for US electrification of transport and the onshoring of green manufacturing that the IRA has triggered.

SPACs and the valley of green death

In 2020 we observed an indiscriminate green rally, as Biden looked like the winner of the US presidential election and markets counted on the US returning to the Paris Agreement. The commitment to net zero was one of Biden’s first actions as he got into the White House in January 2021, and with that ca. 90% of the world’s GDP was committed to decarbonization. That prompted green companies to list as fast as they could, and SPACs do provide the needed speed to market.

Between 2020 and 2023 there were a total of 598 SPACs in the US market. Most of the deals took place in 2020 (187 listings) and 2021 (286 deals). We looked in detail at 40 companies that have relevant decarbonizing solutions. Proterra was part of the group, listing in June 2021. Those familiar with the space will recognize many of the names: QuantumScape (QS), Enovix (ENVX), Freyr Battery (FREY), Amprius Technologies (AMPX) and Solid Power (SLDP), in new battery solutions; Canoo (GOEV), Faraday Future (FFIE), Fisker Inc (FSR), Gogoro (GGR), Lordstown Motors (RIDEQ), Polestar Automotive (PSNY), Arrival (ARVL), Lucid (LCID), Mullen Automotive (MULN) and Nikola (NKLA) in the EV/zero emission space; Tattooed Chef (TTCFQ) and AppHarvest (APPHQ) in the alternative food space; Nuvve (NVVE), Stem (STEM), Wallbox (WBX), Vivint Smart Home (acquired and delisted) in the behind the meter smart energy space; ChargePoint (CHPT), Tritium (DCFC) and EVGo (EVGO) in the EV charging network; and PureCycle Technologies (PCT) and Li-Cycle Holdings (LICY) in EV battery recycling.

Of these 40 green SPACs, five (Appharvest, Kalera, Lordstown, Tattooed Chef and Proterra) have filed for Chapter 11. Of these 40 names, 31 companies have share prices that have dropped more than 50% since listing. Of these 31, 12 have lost more than 90% in value. Of the nine names whose shares have dropped by less than 50% only three (Acher Aviation, Amprius Technologies and PureCycle) have market capitalization that is now above the valuation at the time of listing. 

In a low-interest rate environment, investors were attracted to riskier names. SPACs were used by many companies as a faster way to go public and sponsors were agile in riding the momentum. Many SPACs also included raising fresh capital via PIPE deals (private investment in public equity) and the perhaps premature listings did help funnel much-needed cash into new green solutions and business models.

Implications for investors and for energy transition

Proterra’s difficulties are a blow to Biden’s green agenda. If an almost 20-year-old company with real manufacturing capability, focusing on producing e-buses and EV batteries nationally, in a market carved out for US players was not able to scale up profitably, what are the chances that the other names in the cohort of green SPACs will? 

There is still a way to play venture capital in the public space by being very discerning on the names above that may weather the storm. However, that strategy is unlikely to pay off until a point in the future (maybe 2024?) when interest rates are lower and longer-duration equity strategies become in vogue again. Until then, more green pure players pre-profitability are likely to meet their fate in the currently crowded valley of death.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Gabriela Herculano is CEO and Co-Founder of iClima Earth. She has over 25 years’ experience in finance and in energy. She formerly served as an Executive Director at GE Capital’s Energy Financial Services team in London. She started her career in equity research, covering the Latin American electric utility sector at Lehman Brothers.

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