Summary List Placement
Goldman Sachs is looking to the automotive industry as a growing opportunity to win underwriting and M&A deals. A looming shift toward electric and autonomous vehicles, connectivity software, and online retail has the potential to reshape the car business, creating opportunities for new companies in a sector that has been notoriously difficult for startups.
“Is this like when Henry Ford figured out how to mass produce? Is it like when the steam engine became the gas engine? I think it’s pretty comparable,” said Fausto Monacelli, the co-head of a new team at Goldman focused on automotive technology.
Goldman has already built a relationship with one of the companies leading the auto industry’s evolution, working with Tesla on a number of stock and bond offerings over the years. Now, the bank is increasing its focus on Tesla’s competitors by creating a joint venture between its industrial, tech, media, and telecommunications teams that will focus on auto tech. Chris Buddin, who will lead the joint venture with Monacelli, told Insider the move will ensure Goldman has the resources to pursue business in the booming sector.
“The opportunity, to us, seems so large,” Buddin said.
Bringing together bankers with expertise in manufacturing and technology will also make Goldman better equipped to advise automotive clients, Monacelli said. A decade ago, established automakers didn’t see startups as a threat, and the startups were more interested in putting the incumbents out of business than in working with them. Now, Monacelli said, if you want to be useful to companies on one side of the equation, you need to understand how the other side thinks.
“It’s the only way to give our clients the best advice,” Buddin said.
The excitement around the auto industry’s future has created no shortage of opportunities for investment banks in recent years. Amazon, Apple, and General Motors have led a wave of autonomous-vehicle-startup acquisitions, while young EV companies have gone public at a rapid pace through mergers with SPACs, shell companies that raise money in IPOs with the sole purpose of buying another firm. And if Tesla’s long history of losses is any indication, those trying to replicate its success will need to keep raising money for years to come.
But some experts and short-sellers believe the hype around auto-tech companies, particularly in the EV industry, has gone too far. Many of the EV companies that have gone public in the past year through SPAC mergers have little or no revenue and, therefore, limited evidence of customer demand or their ability to meet it. A few EV startups that teamed up with SPACs have even been accused — by short-selling firms that stand to benefit if their stock prices decline — of misleading investors.
Buddin sees SPACs as a valuable tool for automotive startups, and doesn’t think the increasing number of mergers in the EV industry has gotten out of hand. Even if you have strong demand for your product, it takes a lot of money to ramp up manufacturing enough to satisfy that demand. Automotive companies often have a hard time securing the last big fundraising round they need to take off, Buddin said. SPACs make that process easier.
And while the auto industry has been difficult for young companies to crack so far, a shift toward new technologies could change that equation, creating more opportunities for everyone.
“It’s not a zero-sum game,” Monacelli said. “The market is going to get a lot bigger.”