Elio Motors aims to be the first successfully crowdfunded vehicle manufacturer. Its social media pages solicit donations with big dreams and tales of even bigger successes yet to come. But now that Elio wants to sell shares in the company, its first financial filings with the government paint a much more somber and much more complicated future.
Elio Motors’ filings with the Securities and Exchange Commission, submitted last month, disclose a litany of funding needs, risks, and the prospect of exponential losses before even a glimmer of a production vehicle ever hits the street.
SEC filings tend to be very lawyerly and have to give worst case scenarios; it makes sense for companies to not guarantee even something they are 99.9 percent sure will happen. But “the Elio vehicle requires significant investment prior to commercial introduction,” the filings warn, “and may never be successfully developed or commercially successful.”
The company does not have “a final design, a built-out manufacturing facility or manufacturing processes,” though company founder Paul Elio did tell us the company had plenty of equipment, if not tooling. There is also no recourse if anything happens to him, the “driving force” behind the company, or if he leaves for some reason, the filings say.
Potential investors would not know any of that solely from the company’s incredibly optimistic crowdfunding pitch. And Elio needs quite a convincing pitch, as the nascent company is aiming to make a mass-market vehicle unlike any other on the American market.
Unlike Tesla, Elio Motors’ car – called “The Elio,” of course – is gasoline powered. But it only comes with three wheels, two tandem seats, and a re-worked engine originally designed for the Geo Metro that aims to get 84 miles to the gallon. And all of it will come for the rock-bottom price of $6800, cheaper than many brand-new motorcycles.
However, Paul Elio told Jalopnik in an interview that he does not feel there exists a gap between his company’s pitch to potential investors and customers and what was disclosed to the SEC.
“We’re not trying to hide anything,” Paul Elio said. “I don’t think there’s a discrepancy. The wording is different, but the message is the same.”
But while Elio’s rosy advertising materials blare words like INVEST NOW, the filings present a more complex situation.
‘You Have To Act Now!’
These days, crowdfunding has evolved. Companies like Elio Motors aren’t just promising a neat poster or even a new video game upon completion of funding. And so, Elio has turned to the public for help.
In fact, if you go to Elio Motors’ Facebook page, it’ll tout the company’s SEC approval to sell shares to the public, but instead of pointing you to the SEC’s website for further information about the company’s financial plans and health, it instead directs you right to the StartEngine.com crowdfunding page:
Going to the StartEngine page itself will show all that Elio has accomplished thus far: the money raised, the deposits placed, and the dollar amount of “non-binding indications of interest received.”
Between all the bombast and adulation, it can be a little hard to find the link to the SEC disclosures, but they’re there, in small print, on the right hand side of the screen, right underneath a bigger tab to reserve an Elio, which says “Offering Circular”:
But that crowdfunding plea gets a bit buried by all the self-praise and lofty comparisons. “Why Invest?” the company asks, for you. The answer appears to be self-evident:
Henry Ford built his first gasoline-powered horseless carriage, the Quadricycle, in the shed behind his home. Five years later, he founded the Ford Motor Company. In order to meet overwhelming demand for the new-fangled automobile, Ford introduced new mass-production methods, including large production plants and the use of standardized and interchangeable parts.
Today, there’s a new trailblazer working tirelessly to alter the course of history. His name is Paul Elio.
You can be a part of the next Ford Motor Company or Apple, as if you were investing over 100 years ago, the company says.
“But,” the sales copy notes with a big helping of the sort of charm that late-night infomercials made infamous, “you have to act now!”
Elio’s crowdfunding page goes on to tout praise from articles like this one from the New York Times, whose headline touts it as “a three-wheeled dream car of the future.” Curiously, the company doesn’t link to the actual article. But actually doing so, as we’ve done here, would allow investors to see that the headline actually appears to be sardonic.
It’s not the car we’ve dreamed of, the article implies, but a car that still remains nothing more than a pipe dream.
Others on the waiting list aren’t as philosophical. Those who have grown restless with the delays have requested refunds or taken to online message boards to discuss possible legal action if Elio Motors never produces a car.
Elio Motors has now secured the Shreveport plant and raised $65 million, Mr. Vassallo said. That amount is well short of the additional $230 million the company needs to start production. Until then, Elio Motors will keep selling spots on the waiting list — and, more broadly, a dream.
Undeterred, the company is able to trumpet the money it has already taken in, as if prior investment is indicative of any sort of future performance. Under the “Traction” subheading, the company advertises the $70 million it says it has already raised, on top of over $18 million in profits received, and over $290 million worth of pre-orders.
Buoyed by what can only be good news, people are pouring in cash:
Invest, the Elio Motors Facebook page beckons. Invest, the Elio Motors crowdfunding page begs. Invest, the company’s own website encourages.
The Vehicle ‘May Never Be Successfully Developed’
But that pitch is quite a bit different from what Elio Motors has told the SEC.
Elio is now trying to sell shares, and instead of presenting the worst case scenario—as is required from most publicly-traded companies in government disclosure—it’s merely preening in front of an awed crowd.
And so some parts of Elio’s document are fairly innocuous, detailing the number of shares the company plans to sell. Other parts, however, do not mince words:
We have a limited operating history and have not yet generated any revenues.
Our limited operating history makes evaluating the business and future prospects difficult, and may increase the risk of your investment. Elio Motors was formed in October 2009 and we have not yet begun producing or delivering our first vehicle.
To date, we have no revenues. We intend in the longer term to derive substantial revenues from the sales of Elio vehicles. The Elio is in development, and we do not expect to start delivering to customers until the fourth quarter of 2016 at the earliest. The Elio vehicle requires significant investment prior to commercial introduction, and may never be successfully developed or commercially successful.
It is anticipated that we will experience an increase in losses prior to the launch of the Elio.
The company has lost more than $53 million so far, and goes on to state not only will losses grow, but the rate at which they will increase is expected to rise significantly in the future.
And even if Elio successfully raises the planned $25 million it needs now, the company will need almost ten times that amount just to reach the production stage.
We may not be able to obtain adequate financing to continue our operations.
The design, manufacture, sale and servicing of vehicles is a capital-intensive business. Even if we successfully raise $25 million from this offering, we estimate that we will need to raise an additional estimated $240 million to reach the vehicle production stage. We will need to raise additional funds through the issuance of equity, equity-related, or debt securities or through obtaining credit from government or financial institutions. This capital will be necessary to fund ongoing operations, continue research, development and design efforts, establish sales centers, improve infrastructure, and make the investments in tooling and manufacturing equipment required to launch the Elio. We cannot assure anyone that we will be able to raise additional funds when needed.
But just reaching that stage will be extremely difficult (in this instance, emphasis mine):
We face significant barriers as we attempt to produce our first mass produced vehicle. We currently have a few drivable early prototypes of the Elio, but do not have a full production intent prototype, a final design, a built-out manufacturing facility or manufacturing processes. The automobile industry has traditionally been characterized by significant barriers to entry, including large capital requirements, investment costs of designing and manufacturing vehicles, long lead times to bring vehicles to market from the concept and design stage, the need for specialized design and development expertise, regulatory requirements and establishing a brand name and image and the need to establish sales and service locations.
Also, Elio Motors concedes that as a startup, their production is much more of an uphill battle than those faced by established automakers:
As a manufacturer and seller of only three-wheeled vehicles, we face a variety of added challenges to entry that a traditional automobile manufacturer would not encounter including additional costs of developing and producing a power train, suspension, chassis and other systems with comparable performance to a traditional, four-wheeled gasoline powered or hybrid vehicle in terms of range and power, inexperience with servicing vehicles, and unproven high-volume customer demand for three-wheeled vehicles. We must successfully overcome these barriers to be successful.
Elio Motors also acknowledges that it could be seriously damaged by the loss of one man: company founder Paul Elio.
Our success is highly dependent on Paul Elio, our founder and Chief Executive Officer.
Paul Elio has been the driving force behind the development of the Elio and the company. The loss of his services would have a material adverse effect on our business. We have not obtained any “key man” insurance for Mr. Elio.
The New Rules Of Crowdfunding
Many times, crowdfunded businesses do just fine. People pay to get a company going, and the company delivers on a promise. Everything works out well, and everyone is happy. But it doesn’t always. Sometimes the technology has not quite caught up with the dream, sometimes founders walk away when large challenges arise, and sometimes, just sometimes, a plain old huckster is willing to deprive people of their cash.
The SEC, however, has caught finally caught wind of the dangers inherent to crowdfunding, and for companies soliciting larger donations and investors, new disclosures are required.
Unlike the corporate titans of the world, such as Apple or ExxonMobil, quirky crowdfunded upstarts don’t need to file quarterly earnings reports just yet. But they do need to adhere to what is known as Regulation A+, and file a type of financial disclosure known as a Form 1-A. Elio Motors is one of the first companies to file a Form 1-A, and while your eyes are glazing over from boredom just even reading that, we went through it to pick out the best (and worst) parts.
SEC disclosures were created not as a way for the government to obtain secret information from corporations, but as a way for the government to force companies to disclose worst-case scenario information that companies were privy to, but did not want to disclose to potential investors.
It’s the public’s last defense against companies hoping to get you to part with your money in exchange for a piece of their pie.
The State Of Elio
As for Elio Motors, it has now raised a total of $75 million, Paul Elio said, and it’s hoping to get almost $200 million more in the form of a loan from the American federal government’s Advanced Technology Vehicle Manufacturing program. If it comes through, like it did for Tesla, Nissan, and Ford, the company could be in the clear.
If it doesn’t, like it didn’t for Carbon Motors, Aptera Motors, and Bright Automotive, Elio’s situation could be a bit more dire. The company has passed the first phase of review, though two more remain.
Much of the company’s entire survival is predicated on not only the acceptance, but winning traditional automobile owners over to three-wheeled, two-seater vehicles – and that’s assuming everything in the market stays as it is now.
New technologies such as hybrids, hydrogen fuel cells, or even a jump in gasoline efficiency could threaten the business, Elio Motors acknowledges in the filing. After all, if fuel savings are your goal, why sacrifice so much to own a tiny three-wheeler when the next breakthrough by a major company could leapfrog the Elio?
Transportation regulations loom on the horizon as well, considering that many states regard the Elio as a motorcycle, not a car, and thus require occupants of the vehicle to wear a helmet—or have a motorcycle license to drive one.
But even if widespread acceptance is achieved, and even if the regulations are surpassed, the company’s famous claim of being able to sell its vehicle for just $6,800 seems difficult to achieve. In fact, much of the ability to sell the Elio for that price is based on the company achieving savings through economies of scale, many of which kick in when the company sells 250,000 units. The company says that price at that volume is “achievable,” based on “public response to date.”
(To give some context, that’s a lot of vehicles, especially for a small, up-and-coming automaker with such a unique design and appeal; by comparison, Toyota sold about 300,000 Corollas in America last year.)
As it stands now, Elio Motors has taken in more than 46,000 reservations totaling over $19.4 million.
But that does not mean everything is bad in Elio’s regulatory filings; it’s just that many of the perils aren’t exactly promoted to potential investors.
The company operates in a former General Motors plant in Louisiana, which GM itself renovated in 2002 at a cost of $1.5 billion and comes complete with “fully integrated chassis conveyors, and moving workstations for engine, interior, body, and glass installation and fluid filling.” Elio Motors also has a team filled with varying levels of experience in the automotive industry, from manufacturing to product launch.
The main concern for people buying in right now, however, is that they may not actually be able to sell their shares. As the filing sternly notes:
There is currently no public trading market for our common stock, and an active market may not develop or be sustained. If an active public trading market for our securities does not develop or is not sustained, it may be difficult or impossible for you to resell your shares at any price. Even if a public market does develop, the market price could decline below the amount you paid for your shares.
But once you know everything you can about Elio, and you read through the filing on your own, what you do with your money is your own business.
Top graphic credit Jason Torchinsky