Nikola’s Founder and former Chairman Trevor Milton used a SPAC to get the company the funds need to build its Phoenix-area plant.

The auto industry is partnering with investment banks to reap the big money benefits of a new acronym: SPAC. The big question is: What are they?

Short for special purpose acquisitions company, SPACs are a simple and easy way to funnel cash into existing companies that show promise but have no track record – an approach that seems the perfect fit for many of the new battery-car start-ups and other technology firms hoping to reshape the auto industry.

Fisker, Nikola, Canoo and Lordstown have all gone through the process which is, essentially, a reverse merger. Each of the four have or will end up with valuations exceeding $1 billion after the deal is done, securing hundreds of millions of dollars in additional development cash in the process.

(Fisker going public on NYSE, expected to raise $1 billion.)

The investment bank sets up the SPAC, which is defined as a company with no commercial operations hunting for investors, according to Investopedia. For these reasons, they’re also known as blank check companies.

Some of the pre-IPO investors also get rewarded for their patience and, of course, the investment bank generally charges 10% for an IPO via a SPAC, the website notes. Getting the quick cash is obviously part of the appeal, but for a fledgling company or even a weathered one looking for assistance, they offer more than just funding, they get an advocate to help navigate the system.

Lordstown Motors expects to receive more than $600 million from the IPO to help with Endurance production.

As one executive told TheDetroitBureau.com on background, a SPAC deal can bring in “substantial” amounts of cash while taking less effort – and time – than would the traditional route to taking a company public.

According to the Harvard Law School forum on corporate governance, the SPAC run by the investment bank also takes on the responsibility for the registration statement filed with the U.S. Securities Commission, organizes a road show and underwrites the initial public offering.

(Lordstown becomes latest EV maker to go public.)

Investor website The Motley Fool notes, “Rather than filing all the paperwork associated with the required registration statement with the U.S. Securities and Exchange Commission, a company can instead merge with another company that’s already public.”

SPACs have been around for a long while but grown in popularity in recent years to take advantage of that rule. Some investors turn to a SPAC whose sole purpose is to raise capital from investors and then look to acquire an operating business — often one that’s privately held, the Motley Fool noted.

Henrik Fisker used a SPAC to get additional funding to get the Fisker Ocean into production.

The aforementioned companies, Fisker, Nikola, et al., are all automakers. However, the trend is flowing downstream to auto-related companies like Aeva Inc. The company’s key is technology 4D Lidar on a chip. The chip is capable of handling all the calculations required for guiding an autonomous vehicle through city streets or on the highway.

It is combining with InterPrivate Acquisition Corp, a special purpose acquisition already company listed on the New York Stock Exchange. It will likely exit the process with a valuation of $2 billion, likely serving as the test case for other tech-oriented auto companies.

Aeva’s existing stockholders will retain approximately 80% of the issued and outstanding shares of common stock of the combined company following the closing, expected in the first quarter of next year, according to Aeva’s website. The combination will provide up to $363 million, comprised of InterPrivate’s $243 million held in trust and a $120 million in common stock at $10 per share.

(Nikola completes $700M merger, adds Girsky to board.)

Privately held Aeva already has alliances with Porsche SE and the Volkswagen Group as well as ZF in the automotive space. The company already partnership with Audi’s Autonomous Intelligent Driving unit. Aeva and also has relationship other trucking and mobility venture to bolster adoption of driver assistance and autonomous applications. It also has ties to consumer electronics companies.

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