Electric vehicle manufacturers hit the brakes on their IPO plans, with automotive giant Renault [EPA:RNO] among those stepping back from a public listing of its electric vehicle (EV) unit. But advisers tell ECM Pulse the change in plans is likely only a transitory setback for the sector.

Last week, the French automaker announced that it would cancel the proposed IPO of its Ampere EV and software business.

The following day, it was reported that Volkswagen [ETR:VOW3] had also changed plans on its battery unit PowerCo, which it had reportedly been preparing for an IPO, although the German company had never officially announced that it was definitely pursuing a public listing.

The news came in the wake of falling demand for electric vehicles globally, which has hit manufacturer stocks hard; industry leader Tesla‘s [NASDAQ:TSLA] stock has fallen over 26% year-to-date for example.

EV sales have slowed down for several major auto manufacturers, partly driven by higher interest rates which can make auto financing prohibitively expensive.

In addition, there is still a lack of global electric vehicle infrastructure to replace the convenience of driving a traditional car. Regulatory pressure on the legacy market, such as European commitments to ban the production of new internal combustion engine cars, has also softened, cooling what was becoming a hot IPO sector.

The fall in electric vehicle numbers has badly hit automakers’ equities, including electric vehicle specialist Rivian [NASDAQ:] alongside traditional brands such as Volvo [STO-VOLCAR-B] and Porsche [ETR:P911], which lean heavily on their EV operations as a key selling point.

Data as of Feb 2

“There is a little bit of bad press about the EV sector, which is overdone,” said a banker close to the Ampere IPO. “There was a lot of hype surrounding the whole thing, it was too early.”

“Fundamentally and inevitably, it is where we are headed but the sector got ahead of itself,” he said. “There have been too many disappointments in this, and other ESG-friendly sectors, and it is difficult for investors to get comfortable,” he added.

There are plenty of other e-mobility IPO candidates which could be delayed in favour of remaining longer with corporate parents, including Swiss-based ABB’s [SWX:ABBN] e-mobility unit, which has already been able to put off the need to do an IPO following some private funding rounds and ENEL X Way.

ABB’s e-mobility unit has a Likely VC Exit score of 23 out of 100, according to Mergermarket’s Likely VC Exit predictive algorithm,* driven by the unit’s valuation of EUR 3bn.

Profits not plans

Investors don’t dislike the idea of backing the global energy transition; it has arguably been one of the most loved sectors in the European ECM for the past three years. However, the rise in global interest rates and equity volatility over the last two years, combined with the substantial losses that came with backing early-stage tech IPOs in 2021, has sharpened minds towards cold hard profits.

“I think there was scepticism as to whether an Ampere would happen at all, with what has been going on in the sector,” said an ECM banker away from the Ampere IPO. “It isn’t 2021, people want the stability of management and stability of earnings and profitability, growth is now just a ‘nice to have’.”

An ECM investor confirmed that the headline issues around consumer take-up for EVs as well as a desire across the buyside to focus on fundamentals was driving investor valuations lower.

“EVs are pulling back and the IPOs where there was a heavy EV element in the equity story, like Volvo and Porsche, are all trading down now,” he noted adding that “it is hard to justify a sizeable IPO on the appetite there is out there for the sector.”

Renault’s management had seemed keen on the IPO and had pushed ahead through early EV market challenges but recent downturns meant that a deal was likely no longer feasible, said a second investor.

Stay living at home

A second banker close to the Ampere deal said that while he was disappointed with the decision to delay, management had no need to force an IPO given Renault’s strong cash generation.

Renault’s cash position shows that there is little need to execute an IPO for funding purposes, especially in a market which was less conducive, both bankers said. “For now, it’s better to stay under the parent,” the first noted.

A spokesperson for Volkswagen said the company pays close attention to the efficient use of capital, is willing to open PowerCo’s capital structure, and continues to evaluate its options against the backdrop of the market environment.

“The interest we see from investors remains high,” said the spokesperson.

“Capacities are being built up worldwide, ramp-up of full-electric vehicles is steady but not as steep as expected and raw material prices are showing significant fluctuations,” the spokesperson added.

PowerCo is an important pillar of the VW battery strategy, securing a reliable supply of cells that are competitive in terms of cost and technology, the spokesperson noted.

The death of the electric vehicle industry has almost certainly been greatly exaggerated, but for now, EV IPOs are the wrong deals for a market where investors have no need to take a bet on high-risk growth stocks, especially when virtually zero-risk fixed-income assets are paying attractive yields.

But there is likely no slowing the march of change that is still likely to transform the auto industry over the coming years and decades.

Like Arnold Schwarzenegger’s eponymous Terminator. They’ll be back.

Renault did not respond to requests for comment.

*Mergermarket’s Likely VC Exit predictive analytics assign a score to VC-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction