Investor Perspectives on the Vehicle, Technology & Mobility Space
The vehicle technology & mobility market is in a new phase of acceleration. Over the past 12 months, more than $1 trillion in public equity value has been created in the space – a tremendous amount momentum that is commanding the attention of a diverse, broad group of investors. Baird’s inaugural Vehicle Technology & Mobility Conference – held virtually in March 2021 – united companies, c-level management and investors from across the vehicle technology and mobility markets. The event was hosted by Baird’s Equity Research and Global Investment Banking teams.
As a featured session at conference, the discussion highlighted investor insights across different stages of capital formation, from early-stage and venture-focused firms to well-known, seasoned public equities. The panel was co-hosted by Adam Czaia and Macie House, both Managing Directors in Baird’s Global Investment Banking Group. Among the featured speakers were Simon Boag of Kensington Capital; Kasey Evans of BUILD Capital Partners; Sam Gabbita of Qell Acquisition Corp.; Quin Garcia of Autotech Ventures; Elliot Mattingly of Fidelity Investments; and Robert Stevenson, CFA, of Franklin Advisers.
After introducing themselves and their firms, the group discussed their greatest areas of interest in the space, how they evaluate potential investments, their best advice for management and boards in the market, and other topics.
Subsectors in Focus
The first topic of discussion centered on the panels’ top subsectors of interest within vehicle technology and mobility. Evans, a Managing Partner of BUILD Capital, which primarily focuses on venture investments, spoke about his team’s interest in transformative technology. “Our primary focus is on the technologies that solve some of the industry’s largest problems,” pointing to CO2 emissions, driver shortages and safety as the industry’s top challenges and citing electrification, autonomous vehicles and software-related options as potential solutions, respectively. Boag, Chief Technology Officer at Kensington Capital, echoed Evans’ comments. Picking up on Evans’ electrification-driven comments, Boag said, “There’s just so much change there. There’s kind of a once-in-100-years change as we see this conversion... with all of the change that’s going on with the technology, there’s going to be some big changes in the aftermarket. We look at that and say, ‘Okay, how do we get the best growth opportunity with that lowest risk?’ And that lowest risk being revenue or signed purchase orders or commitments or endorsements. Those are really important to us.”
Czaia then tapped Mattingly’s public equity perspective on the market, asking him to comment on themes he’d like to see emerge in the markets. Mattingly acknowledged great opportunity on the electric space and spoke about the potential of the autonomous vehicle market. “I think where it gets challenging is if you look at a lot of the opportunities today, it’s hard to find products that really work… you want to back some of the really great teams that are doing work in this area, and we have been involved in some on the private side, but again, when you’re talking about something that’s such a technically complex problem, I’m not sure that a lot of those companies are necessarily a great fit for the public markets,” said Mattingly. He continued, “So I would say that’s an area that’s underrepresented on the public side, but I don’t think that’s necessarily a bad thing or, at least, I think we need to get a little bit closer to some of these companies being actually revenue generating for them to have sort of real targets to give investors.”
Key Investment Criteria for Sector Investors
House turned the discussion to investment criteria, asking the panel to speak to how they evaluate opportunities and what they prioritize in their processes. Stevenson, whose position spans the public-private spectrum, highlighted the basic – but essential – importance of a large total addressable market. “The common thread across our private and public investments that we find – and it’s so obvious in hindsight, but you can get so lost in the weeds of the day-to-day, especially in the private markets – they have massive TAMs… we look for technologies where we feel like they have hit that inflection point where they are just better… we want to find that at the intersection of where regulatory policy is pushing in the same direction that the consumer market is pulling.” He highlighted autonomous vehicles as sector with great potential, but one where “better” may be down the road. Gabbita agreed with Stevenson’s view on the autonomous vehicles space. He shared a slightly different take on TAM: “We take that massive TAM and divide it by the number of competitors… for us, I think the criteria would start with an addressable market, number of competitors, technology [and] defensibility – and technology defensibility also bleeds into, ‘Does it have disruptive potential?’ ‘Is there a network effect?’”
Garcia shared a start-up-investor lens on the question. In addition to the traditional ACE mobility mega-trends – autonomous, connected, electric – his firm adds a “D” for digitization to encompass the myriad of digital technologies that are germane to all dimensions of ground transportation. “Another way to describe our scope is we’re vehicle agnostic. Anything with wheels or tires or rails – passenger cars, motor homes, tuk-tuks, trucks, vans, farm vehicles, mining vehicles, anything that moves people and goods along roads – those are the specific pain points that we’re looking for.” As for management team priorities, “In a team, we’re looking for superpowers. We’re looking for people on boards, founders and management teams that are uniquely qualified to execute on that business plan. They have some superpower.”
Advice for Management Teams and Boards Considering a Capital Raise
Czaia shifted the discussion to the panel’s advice for vehicle technology and mobility management teams considering a capital raise, whether private or public. Evans provided an early-stage investing lens. “Focus on delivering real solutions…. [companies] have got to understand what stage they’re at, if they’ve got real products that can deliver to customers and get on the road.” As for capital partners, Evans recommended a thoughtful approach. “That’s what I would tell all the entrepreneurs – [to] be extremely selective. Find those that really understand your segment and your industry and your product and your needs.”
SPACS – What Inning are We In?
Boag weighed in on the rapid rise of SPACs. “Last year we were educating people on what a SPAC is – now we’re educating people on what a SPAC isn’t.” He continued, “If you think about it, if SPACs are replacing late-stage venture, that means there’s more money for venture to go into earlier stage, which is going to generate a bigger funnel of companies coming through the pipeline... there’s going to be some carnage, no doubt. The point that Kasey was making about quality and selecting your partners is absolutely right, especially in this automotive space.”
Mattingly acknowledged it’s difficult to determine how mature the SPAC trend is, but said, “We’re probably closer to the seventh [inning] than the second. I think the rationale for that is just that I do think we are seeing sort of general deal quality decline over time… we’ll see. To Simon’s points, SPACs are a really interesting tool, but I don’t know that everyone is using them appropriately. And so, you know, I agree with the thought that there will be some carnage as some of the stuff shakes out.Robertson wrapped up the panel by offering a unique response. “I’ll make the market and say we’re in the second inning,” elaborating by saying, “We’re in the seventh inning of game one, but it feels like we’re in a five-game series and to Simon’s point and to Elliot’s point, I completely agree. I think there’s going to be a brutal shakeout… I think on the other side of this game is sort of the real game, which is going to be where there’s a limited number of SPAC managements out there that have survived. And there are specific companies where this is the right tool for them.”
Chief Technology Officer
Kensington Capital Partners LLC
BUILD Capital Partners
Chief Financial Officer
Founder & Director
Qell Acquisition Corp.
Equity Research Analyst & Select Automotive Fund Manager
Robert Stevenson, CFA
Vice President, Research Analyst & Portfolio Manager
Franklin Advisers, Inc.
Global Investment Banking
Global Investment Banking