$1 Billion EV Startup Declares Bankruptcy

Electric Last Mile Solutions declares bankruptcy after being unable to secure financing following the CEO’s controversial departure. What does this mean for other EV start-ups?
Written by Allison Stone
Reviewed by Kathleen Flear
Jun 27, 2022
In the increasingly competitive marketplace of
electric vehicle
startups, not every venture is going to make it. Less than a year after going public via merger with a special purpose acquisition company (SPAC), EV startup Electric Last Mile Solutions has gone the way of the
Faraday Future
or
Byton.
 
Each of these companies started with promise, but in turn, faced obstacles that proved too difficult to overcome.

It’s not easy for any companies right now 

Even for established brands like
Tesla
, the world of electric automobiles has proved to be challenging. The EV giant has reportedly neared bankruptcy twice in its tenure but pulled itself out to reap successful sales on the ultra-popular Model 3. 
In the case of Electric Last Mile Solutions (ELMS), the announcement to file for Chapter 7 bankruptcy came following a difficult several months after the former CEO’s departure in February.

The rise and fall of ELMS

In a statement released on PR Newswire, officials at ELMS went into more detail on what led to the bankruptcy filing. 
The company, which is headquartered in Troy, Michigan, was first founded in 2020. ELMS went public in June 2021 through a $1.4 billion merger with blank-check firm Forum Merger III Corp.
In Mishawaka, Indiana, ELMS has a production facility where it makes its Urban Delivery electric vans, which are the first of their kind for the U.S. market. These light-duty electric vehicles are intended to be used by commercial fleets. 
Things took a turn for the worse, however, when President and CEO James Taylor and Chairman Jason Luo resigned in February. An internal investigation found they had purchased company equipment at deeply discounted rates prior to the merger. 
A subsequent investigation by the Securities and Exchange Commission (SEC) in March only made matters worse. ELMS’ shares plummetted to below $1, and the company laid off almost 25% of its workforce 
In May, the company was at risk of being delisted over delayed report filings. 

Startups are being held accountable for taking shortcuts 

Choosing to merge with a special purpose acquisition company in lieu of the more rigorous route required to establish a traditional IPO has been a common practice among EV startups, but it doesn’t always pay off. 
Companies like
Faraday Future
, which first unveiled its EV concept in 2017, faced scrutiny when unable to deliver an actual vehicle five years later. 
Lordstown Motors
, another electric truck company, went public in October of 2020 through a $1.6 million SPAC merger with DiamondPeak Holding. 
Repots of falsified preorders, like the $735 million in sales of 14,000 trucks to a company without a vehicle fleet at all, has led to similar investigations. EV makers Lucid Motors, Nikola, and Canoo have also faced SEC investigations, executive resignations, and Nasdaq de-listings. 
In light of these ongoing revelations, the SEC has proposed stricter rules to maintain better oversight. 

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