Electric Last Mile Solutions Inc. (NASDAQ: ELMS) intends to file for Chapter 7 bankruptcy.
ELMS stock may be the first EV SPAC to succumb to bear market forces, but it’s unlikely to be the last.
The EV company went public in 2020 via a special purpose acquisition company (SPAC) and reached a high of $14 in December that year. Its share price steadily declined throughout 2021 and has since plummeted over 92% year-to-date.
Electric Last Mile is a pure-play commercial electric vehicle (EV) company that has been focused on redefining productivity for the last mile of delivery.
Shauna McIntyre, ELMS Interim CEO and President said:
I'm very disappointed by this outcome because our ELMS team demonstrated incredible determination to get our electric vans ready to meet the critical need for clean, connected vehicles that reduce carbon emissions from ground transportation.
Unfortunately, there were too many obstacles for us to overcome in the short amount of time available to us. I could not be prouder of what our team has been able to accomplish under very challenging circumstances.
Brian Krzanich, ELMS Board Chair and former CEO of Intel said:
For the past several months, the ELMS board and the new ELMS leadership team have worked nonstop to address legacy financial, governance and operational matters at the Company, and enormous progress was made, including towards vehicle certification.
Therefore, it's extremely frustrating that we must take this route, but it was the only responsible next step for our shareholders, partners, creditors, and employees.
SEC SPAC Crackdown
In March, the US SEC reviewed proposed guidelines for SPACs, to better protect investors. The SEC proposes rules to enhance disclosure and investor protection relating to SPACs, shell companies, and projections. This specifically includes redefining disclosures, marketing practices and third-party oversight to raise the barrier of entry to becoming a SPAC.
The SEC’s review is ongoing, but it is already making firms nervous. Goldman Sachs has paused SPAC deals until the process is more straightforward.
SPAC deals were all the rage in 2020, with retail investors caught in a frenzy of hyped mergers. Fortunes were won and lost, but it soon became apparent that this type of IPO is open to manipulation. In particular, insiders often have an unfair advantage over the masses who get in on the rumor.
The new SEC SPAC guidelines should be finalized later this year.
Buy the Rumor, Sell the News
ELMS is a case in point for many SPACs. The ELMS share price spiked to $14 on the rumor of the target company and their upcoming merger. But the share price never retraced those highs. And ELMS debut on June 28, 2021, closed at $11.56.
11 December 2020:
Electric Last Mile Solutions (ELMS) said on Friday it has agreed to go public through a reverse merger with blank-check company Forum Merger III Corp in a deal that values the U.S. electric commercial vehicle maker at $1.4 billion.
On June 28, 2021, CEO James Taylor said:
We’re going to be in the wind that will blow one way, it’ll blow another way for the next few months, until we produce evidence and tangible proof of our business plan. Until then, we’ll probably just bounce around whatever is going on in the space.
ELMS Executives Resigned
CEO James Taylor and Chairman Jason Luo resigned in February 2022 after it was revealed they’d bought equity in ELMS “at substantial discounts to market value without obtaining an independent valuation.”
Luo also sold shares before the business combination was announced in December 2020.
Both executives are experienced auto-industry professionals, with Taylor formerly working at General Motors (NYSE: GM) and Workhorse Group (NASDAQ: WKHS). And Luo, the former president of Ford China.
Following their resignation, the company announced it would be cutting 24% of its workforce in order to streamline and cut costs.
Most EV SPACs Lose Money
A Citywire study released earlier this year showed nearly all SPACs that merged with an electric vehicle or charging infrastructure company saw their share price fall.
Canoo Inc (NASDAQ: GOEV) is down 85% since its high, as is Faraday Future (NASDAQ: FFIE).
Meanwhile, Lordstown Motors (NASDAQ: RIDE) and Nikola (NASDAQ: NKLA) are down over 90% since their share price highs.
Whether these high-profile EV stocks make it through the next few years will depend on revenues, funding, inflationary effects, meeting milestones, competition, and demand for their offerings. Their success will also hinge on them following the rules and regulations set by the SEC.
About Electric Last Mile Solutions, Inc.
Electric Last Mile Solutions, Inc. (ELMS) is focused on defining a new era in which commercial vehicles run clean as connected and customized solutions that make its customers’ businesses more efficient and profitable. ELMS’ first vehicle, the Urban Delivery, is the first Class 1 commercial electric vehicle in the US market.
Over the past year, Electric Last Mile Solutions Inc (ELMS) has traded between $0.50 and $12.
On the ELMS investor relations page, Shauna McIntyre, ELMS Interim CEO and President said:
I want to assure all our stakeholders, including customers, suppliers, investors and employees, of our continued focus and dedication to the Company’s ongoing business and mission.
About Forum Merger III Corporation
Forum Merger III Corporation (Nasdaq: FIII, FIIIU, FIIIW) was a blank check company formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Forum was organized by founders Marshall Kiev and David Boris.