What Is Burn Rate?
The burn rate is used to describe the rate at which a new company is spending its venture capital to pay for their business overhead before generating positive cash flow from operations or in short it measures the negative cash flow of the company. We can usually see this from a company's quarter earnings report.
EV companies with high burn rate
For new EV makers, they have notoriously high burn rate and losing hundreds of thousands of dollars for each EV they make
$LCID, Lucid, makers of luxury EV has so far burned $2.36 billion in first 3 quarters of 2022 and has $3.3billion in cash remaining as of Sept 30 2022
$RIVN, Rivan another EV maker fare no better having burned $4.3 billion in the first 3 quarters of 2022 although they have much more cash of $13.8 billions at the end of quarter 3
But at this high burn rate, both companies will have enough cash to only last a year or two. This is ignoring the fact that they will likely have higher cash expenditures in future given the fact they need to ramp up their production to meet targets and if we recall, every additional vehicle they make result in a bigger loss as a company.
Current macros piles on the woes of new EV makers
With the FED reducing their balance sheet aggressively, liquidity is drying up. These new EV companies will have problem finding new venture capitals to fund their production. The worst case scenario might see them going bankrupt.
We have already see bankrupts happening to new EV companies such as Electric Last Mile Solutions, Fisker and Faraday Future
Thoughts
The future seems bleak for new EV makers with high burn rates especially in current macro environment where securing new fundings will be difficult. However, if they are able to survive they might be become a successful story similar to Tesla where it almost went bankrupt too during their early days.
$Lucid Group Inc(LCID)$ $Rivian Automotive, Inc.(RIVN)$ $Tesla Motors(TSLA)$
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