The electric vehicle SPAC boom is likely to continue as over $2.5 trillion is needed to make a full transition to EVs, BofA says

Summary List Placement

• The number of electric vehicle SPACs may rise in the years to come as the world pivots to full EV adoption and looks for ways to raise money to fund the transition that could cost up to $2.5 trillion, according to Bank of America. 
• 2020 saw a boom in electric vehicle SPACs, with companies including Nikola, Fisker, and XL Fleet  all going public via a reverse merger with a special-purpose acquisition company. 
• BofA said the recent SPAC boom indicates that there is a lot of capital waiting to be deployed for companies participating in the "electrification revolution." 
• "With this in mind, we would expect the EV SPAC boom and capital raises for newer EV companies to continue in 2021+" BofA added. 
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The number of electric vehicle SPACs may rise in the years to come as the world pivots to full EV adoption and looks for ways to raise money to fund the transition, according to Bank of America. 

"The Auto industry is reaching an inflection point for electric vehicles, but funding this revolution is a tremendous hurdle," a team of BofA strategists led by John Murphy said in a note on Wednesday.

BofA estimates that the transition towards 100% electrification could require over $2.5 trillion of investment around the globe over the next decade. One way to raise that capital could be through a SPAC. 

2020 was a banner year for electric vehicle SPACs. Nikola, Fisker, Lordstown Motors, Canoo, and XL Fleet Corp were just some of the companies that went public via a reverse merger with a special-purpose acquisition company in 2020. According to BofA, over $6 billion so far has been raised so far via EV SPACs.

Although that amount is nowhere near the $2.5 trillion capital goal, the recent SPAC boom indicates that there is a lot of external capital waiting to be deployed for companies participating in the "electrification revolution," said BofA.

"With this in mind, we would expect the EV SPAC boom and capital raises for newer EV companies to continue in 2021+" BofA added. 

Read more: Wall Street has launched an electric car SPAC craze trying to find the next Tesla. Experts warn they're creating the next dot-com bubble.

The shift toward electrification raises the question as to whether incumbent auto equipment manufacturers or new entrants will be see the biggest investments in the race to electrify. Bank of America says newer EV entrants, and those who could use a SPAC money to raise capital, may have an advantage.

"A key competitive advantage currently being afforded to the newer EV entrants versus the incumbent OEMs/suppliers is unfettered access to low-cost capital to fund product development, capacity installation/expansion, and other business efforts, as illustrated by the SPAC boom and TSLA's constant capital raises," said the strategists.

Other sources of this capital to meet the $2.5 trillion goal will include internal funding within existing auto suppliers, other forms external capital raising outside of SPACs, and government funding, said BofA.  

For example, the proposed Green New Deal in the US could be a harbinger of possible support to come, though the $2.5 trillion estimate is an approximation for capital required around the globe, not just in the US, the strategists said.

In the United Kingdom, the sale of new gas and diesel-powered vehicles will be outlawed in 2030, as part of the country's "green industrial revolution" plan. The plan also involves a roughly $1.7 billion investment in new private and public charging stations, and $774 million in grants to incentivize buyers of zero-emission and low-emission vehicles, in another example of government funding that could help drive the transition to a world with 100% electric vehicles.

Read more:Inside a failed attempt to reinvent the IPO process with Airbnb and DoorDash

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