Axios Markets: Mood change in EV land 🚙

Plus: Hedge funds grow assets and influence | Friday, May 28, 2021

Open in app View in browser   Presented By OurCrowd   Axios Markets By Aja Whitaker-Moore ·May 28, 2021 Good morning! 🎧 Dion set a high bar and I, too, will miss waking up to his words in my inbox each day. "The World Is Yours" is a worthy farewell outro from one of the greatest rappers of all time. After a short break, Markets will be back the week of June 7 with exciting news about the future. 🎤 Meanwhile, check out this week on Axios Re:Cap with Dan Primack: America's Business Comeback. This podcast special series profiles businesses impacted by the pandemic and the decision-makers leading the recovery. Find it here. (Today's T.GI.F. Smart Brevity count: 1,098 words, 4 minutes.)     1 big thing: EV SPACs lose their luster Illustration: Shoshana Gordon/Axios   Investors have been falling out of love with electric vehicle startups — particularly the ones that have merged with SPACs, write Axios' Hope King and Joann Muller. Why it matters: EV companies were a hot target for SPACs last year as investors saw long-term growth opportunities in the global transition to clean energy. But the mood has changed as incumbent automakers Ford and GM have stepped up their plans to become more competitive in the EV market. Growing regulatory scrutiny over SPACs and broader market sentiment shifts are also casting shadows over the sector. Driving the news: Shares of pre-revenue EV company Lordstown Motors plunged 15% after the Monday announcement that the company needs to raise additional capital — though the stock has recovered. On the flip side, Ford shares have gained 13% since Wednesday, when the company said it expects EVs to make up 40% of its worldwide sales by 2030. The SPAC factor: Entrepreneurs eager to capitalize on the clean energy revolution opted to fast-track pre-revenue EV companies to the public markets through SPAC deals. Congress and the SEC are now investigating rules around speculative projections and erroneous accounting practices in SPACs. In EV land, the SEC is specifically probing Canoo and Lordstown. By the numbers: Four EV makers that completed a SPAC merger last year — Fisker, Canoo, Lordstown and Nikola — are trading between 72% and 90% lower than their highs. Shares of 19 EV and EV-adjacent companies that have gone public via SPACs have seen their share prices fall about 50% from their highs, according to an Axios analysis of SPAC Research data. What they're saying: The initial hype for EV stocks is similar to what happened during the early 2000s tech boom, Bill Selesky of Argus Research tells Axios. Like pre-revenue tech companies then, these new EV makers have warned investors that it could take years to grow — but investors are showing more skepticism and less patience. Reality check: The chip shortage and concerns of rising inflation and subsequent rate hikes have pushed many investors to risk-off mode. Our thought bubble: New EV companies are motivated by the idea of being the next Tesla, while investors want to find the next Tesla. But history is littered with examples of car companies that have failed — even Tesla has come close many times. The bottom line: Incumbent carmakers will likely end up winning a large portion of the EV market, while smaller companies get scooped up or fold.  Some investors will get burned along the way. But the world will ultimately have a lot of EVs. Go deeper     2. Catch up quick President Biden is expected to propose a $6 trillion budget as soon as Friday, pushing federal investments in infrastructure, education and healthcare to their highest levels since World War II. (NYT) CEOs of the six largest U.S. banks testified before the House Financial Services Committee Thursday (a day after a similar Senate committee hearing) and pledged to work with homeowners to help them avoid foreclosures. (AP) The Texas electrical grid came within minutes of a complete collapse during the winter storm in February. (WSJ)     3. D.C. tackles chip shortage Illustration: Sarah Grillo/Axios   Speaking of the chip shortage, elements of the bipartisan U.S. Innovation and Competition Act could help address it in the form of an emergency appropriation, Hope writes. Why it matters: Production of everything from electronics and appliances to cars has been slowed down because of the shortage, which is expected to last until 2023. Automakers have been hit hardest. The average car needs between 50 and 150 chips. Ford and GM are temporarily shutting down plants because of the issue. What they're saying: Commerce Secretary Gina Raimondo points to the shortage as proof that the U.S. needs to increase its chip-making capacity. "We are going to get it done. There's no option," she told CNBC on Tuesday.  The Senate is currently working through compromises on the legislation, which would provide $52 billion for semiconductor manufacturing. The bill is meant to boost U.S. competitiveness against China, in areas like 5G and AI. The big picture: There's private sector interest in improving the American semiconductor sector. Companies like Intel and Samsung are making massive investments in U.S. chip manufacturing. A recent McKinsey report points to boosting U.S. chip manufacturing as a way to make the country's manufacturing sector more competitive, supporting the premise of the bill as well as President Biden's American Jobs Plan. What to watch: Factories are also facing a shortage of workers. This could further delay the return to pre-pandemic manufacturing capacity — and push industries toward more automation.     A message from OurCrowd Launchpad empowers $55 billion small-line manufacturing industry     AI-powered autonomous manufacturing using 3D printing enables Launchpad to rapidly create complex products from customer designs. Its backers include IdeaLab, the startup incubator behind over 150 innovative companies. And you can join them. Explore OurCrowd's Launchpad opportunity.     4. Don't fear inflation Illustration: Annelise Capossela/Axios   Inflation isn't always and necessarily a bad thing. It's one of many variables in the economy, and its presence helps some groups of people and harms others. But that kind of nuance is getting lost in the present debate, writes Axios Capital author Felix Salmon. Why it matters: There are two well-defined inflation camps at this point. Both of them take it for granted that inflation is, broadly speaking, a bad thing. But that's never true for everyone, and always depends on how you define it. Where it stands: The messaging from the Fed and the Biden administration is clear. Consumer price inflation has been low — too low, in fact — for many years. As we recover from the pandemic, it might be high for a while. But that's likely to be temporary, and nothing to worry about. Inflation hawks, led by Larry Summers, disagree and warn of inflation accelerating out of control. Invariably they conjure up images of the 1970s. The big picture: Recent decades have seen a lot of the kind of inflation that's good at entrenching the upper-middle classes. Asset-price inflation — a roaring stock market and housing market — has made the rich richer, while leaving much of the country behind. Rampant inflation in college tuition and healthcare costs has similarly privileged the few who can easily afford such things. Wage inflation is disliked by corporations but loved by workers. Context: Precisely because inflation last happened so long ago, it has become much scarier than it probably should be. If inflation is driven by wage hikes for people earning less than $60,000 per year, it's not even clear that it would be a net negative for the country as a whole. Flashback: The 1970s were half a century ago, a world of oil crises and the Vietnam War and a truly astonishing number of aircraft hijackings. China was still decades away from disrupting the international labor market, and the internet was still mostly just a U.S. defense project. The bottom line: Inflation wasn't the main reason people disliked the 1970s. If the 2020s do see inflation, then the 1970s won't be the result. Go deeper     5. Hedge fund assets and influence grow Data: Preqin; Chart: Axios Visuals Hedge fund assets passed the $4 trillion mark during Q1 2021, ending the quarter at $4.15 trillion, Axios' Kate Marino writes. Why it matters: As hedge funds have grown in size — almost doubling their $2.3 trillion assets under management in 2012 — so has their power to influence markets. What to watch: Preqin's 2020 survey of hedge fund managers identified that a shift toward ESG-friendly investment policies is percolating. While just 39% of funds have an active environmental, social and governance policy, another 16% are considering or implementing ESG plans. One example: Ray Dalio's Bridgewater Associates, the world's largest hedge fund, in April launched a new sustainable investing venture.     A message from OurCrowd OurCrowd breaks down private market barriers for investors     Problem: Startups are staying private longer, keeping investment growth behind closed doors. Solution: OurCrowd is changing that. They have 73K members and have invested $1B+ in companies like Lemonade and Beyond Meat — pre-IPO. Get in early on tomorrow's big deal - with OurCrowd.   Was this email forwarded to you? Sign up here. Send tips, or feedback to aja.moore@axios.com or hit me up on Twitter @AjaWMoore. Like this style and format? Request access to Axios HQ The tool and templates you need for more engaging team updates.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: