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There’s been seemingly insatiable demand lately for electric vehicle stocks. First, Tesla became a trillion-dollar company. Rivian pulled off this year’s biggest IPO, then watched its shares soar. Lucid has surpassed Ford in market value.
Commentators are contemplating whether we’re witnessing a bubble. Sure, EVs are the future, and one of the above companies is bringing them into the mainstream. But are investors taking big risks by betting on Tesla at these levels, or by piling into unproven challengers?
Consider the wager investors just made on a Munich-based business that’s been trying for years to commercialize solar electric vehicles. Sono Group went public Wednesday at $15 a share and more than doubled in its debut.
As was the case with Rivian, Lucid and last year’s EV stock entrants Nikola and Lordstown Motors, Sono made its market debut before reporting revenue. Sono has been developing a polymer technology it says will be lighter, more flexible and cheaper than traditional hardware reliant on glass to cover solar cells.
The company has a two-pronged business plan: sell and license its solar technology to other manufacturers, and use it on its own vehicle, called the Sion. Sono expects the car to offer as much as 305 kilometers (190 miles) of range, with the cells strewn around the car’s exterior capable of adding an average of 112 kilometers of juice to the battery per week.
So…what’s not to like?
Well, Sono has racked up about 108.8 million euros ($123 million) in losses since its inception in 2016. When key investors balked at putting in more money roughly two years ago, co-CEOs and co-founders Laurin Hahn and Jona Christians turned to crowdfunding. There was a hitch in that strategy: since March of last year, Sono has been unable to access about 5 million euros from PayPal. The online payment company froze its account, citing risks related to unexpectedly high transaction volume. Sono says it started the process of fighting this as of mid-August.
Without any proceeds from this week’s IPO, Sono estimates it would have been insolvent by next month or shortly thereafter. It expects to lose money for the foreseeable future and continue relying on external financing to stay in business.
There were other red flags in the company’s prospectus:
- Sono acknowledged it wouldn’t generate a profit selling the Sion at its initial targeted price of 21,400 euros before tax in Germany. It recently lifted the price to 23,900 euros.
- The start of Sion production has been delayed to sometime in the first half of 2023.
- It’s contracting out the work of manufacturing the Sion to National Electric Vehicle Sweden, a unit of the EV business within troubled Chinese enterprise Evergrande. NEVS, the Swedish company, is seeking new owners.
- Certain production machines that turn Sono’s technology into “actual products” at scale have not yet been developed.
- An early prototype version of Sono’s solar modules rippled when exposed to intense sunlight for an extended period. The company believes it’s found the reason for these issues but can’t rule out this could recur.
- None of Sono’s prospective Sion customers have entered into a binding purchase agreement, and the company warns it might have accidentally accepted reservations from customers in jurisdictions where it may not be allowed to deliver vehicles.
- The company has identified “material weaknesses” in its control over financial reporting and has warned that if it can’t remediate them, “we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.”
Facing questions about many of these issues didn’t faze Sono’s co-founders.
Cooperation with NEVS is “very good,” and “that’s the only thing that is important for us at the moment,” Christians said in an interview, when we asked about Evergrande’s liquidity issues.
“It’s an unbelievable day for us,” Hahn said. “We started nine years ago in our garage with our bare hands.” By day’s end, the company was worth about $2.6 billion.
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