Why Elio Motors Makes Me Sad

 

I want to be clear: I am not an investor in Elio Motors (OTCQX: ELIO). I did not participate in any manner with their offering under the new and improved Regulation A (also called Reg A+), and I did not promote it. I will gain nothing if Elio is successful. However, I desperately want them to be successful because if Elio Motors fails, I, and other professionals like me, also stand to fail.

In June of 2015, the new rules of the JOBS Act finally made Regulation A legal. This was a long time in coming and much awaited considering the JOBS Act was passed way back in 2012. Elio Motors did not hesitate in taking advantage of the new rules and filed their own approximately $25 million Regulation A offering on August 28, 2015 with a qualification date of November 20, 2015. Elio immediately reached out to its many disciples to solicit investments. Who better to invest in a startup than the loyal (potential) customer?



Elio Motors was special. They were designing an inexpensive “motorcycle car” that was “high quality, reliable, safe, eco-friendly and affordable.” This was very exciting to anyone who wanted to buy a Tesla, but couldn’t afford one. The public was sold. Elio told their loyal followers that they “[hoped] to make a game-changing impact beyond sales; creating thousands of jobs, reducing dependence on foreign oil, reducing emissions, and favorably affecting the trade deficit by reducing foreign oil purchases, exporting vehicles, and providing a significant return for investors.”
Sounds romantic.

Of the money raised, Elio predicted they would need to spend approximately $7,451,000 on the development of a prototype. By reading the offering circular, it seemed that Elio Motors thought of everything – right down to the colors of the cars: Rocket Silver, Sour Apple, Creamsicle, Red Hot, True Blue, Licorice and Marshmallow.



After approval, Elio offered their newly qualified stock at $12.00 per share. An investor could participate for a mere $600. From the sales of the shares, Elio netted approximately $16,000,000. This amount would make it seem that Elio Motors, after toiling since 2009 on an eco-friendly, affordable vehicle, would be able to finally build a working prototype.

Unfortunately, the working prototype does not really “work”….yet…

Elio was honest: they told the investors exactly what was going on in both risk factors and financials. However, they were also unreasonably optimistic and financially burdened from the beginning.

60 to Zero

Here are some of the reasons the investors of Elio Motors will most likely never see their investment dollars again:

  • Elio Motors started in 2009. Although Elio did not conduct their offering until 2015, they have been in existence since 2009. I will admit, I know nothing about the science or governmental regulation surrounding the building of a car. I do imagine it takes a long time. However, by their 6th year anniversary, the company did not have (and still doesn’t have) a working prototype.
  • Elio Motors has a ton of debt. Before they even hit the market with the Regulation A offering, Elio motors was holding debt upwards of $70 million. Of this, $17 million was customer deposits, – meaning they had to build a car and then sell it to the customer. They now have in excess of $123 million in debt.
  • The officers were getting paid (very) well. This one is tough. It’s important that the best and brightest are in the positions that determine shareholder wealth and that they are compensated appropriately to keep them adequately motivated. However, in the case of Elio Motors, a company that has not generated ANY revenues, it is hard to swallow $250,000 salaries for officers while they also hold 87.1% of the outstanding stock. Paul Elio, CEO and Chairman, holds 65.8% of the outstanding stock, meaning he sets his own salary.
  • The timeline and financial needs were overly optimistic. Elio Motors predicted a 15-month timeline from Regulation A offering to market. This means that Elio should have started production this month. Now, it is reported that they need a whopping $376 million to even start production and production will start no sooner than 2018. Production has no chance of happening if additional capital isn’t available.
  • Elio is out of money. Elio needs money to move forward, but they also don’t have any money. Of all the capital the company has received over the last several years, they are down to approximately $120,000.
  • The shares have already taken a massive hit. Stuart Lichter, an investor and director, invested additional capital of approximately $514,000 in Elio Motors. However, this was at a price point of $5.98 per share – a price that is half of what the shareholders in the Regulation A paid. As of the writing of this article, the shares are trading at $6.35 per share.

Why There is Sadness

Regulation A is such an amazing opportunity for entrepreneurs, startups, and, especially, investors. It has been one of the great misfortunes of our legal system that the best deals were only available to accredited investors.

Now, with Regulation A allowing anyone to invest, average Joe investor has an opportunity to get in on the “next big thing” at the ground floor. Elio Motors was supposed to be that “next big thing.”

Failure of Elio Motors is not an option as the domino effect will be overwhelming:

  • There will be more stringent and careful eyes at the Securities Exchange Commission on future filings. This means it will become more expensive and onerous for the small start-up or entrepreneur to even get to market.
  • Fewer attorneys and accountants will want to take on the responsibility and liability of doing Regulation A offerings without the proper compensation. This will also drive up the cost of Regulation A offerings.
  • Investor confidence will be destroyed. Elio Motors and their offering had a lot of press; they had more press and publicity than any other Regulation A offering. If the press for their filing success was under a magnifying glass, the press for their failure will be under the Hubble Telescope. Any investor, whether experienced or not, is going to be adversely affected by this news.
  • The Elio Motors shareholders will lose their investment. This is the worst part of it all. The shareholders took a real chance and believed in the company. There is risk associated with every investment and there was certainly risk with Elio Motors – it was written all over their prospectus. However, it will be particularly sad to see these smaller investors who believed so much in the company and concept to lose their investment dollars.

In the end, all we can do is shut our eyes and hope that Elio turns out like Tesla.


 

Jillian Sidoti, Esq., CCIM is one of the country’s leading experts on Regulation A+. Since 2008, Jillian has submitted multiple Regulation A Offering Circulars to the Securities Exchange Commission for approval making her one of the few attorneys familiar with the law prior to the changes under the JOBS Act. Since the JOBS Act, Jillian has assisted multiple companies and entrepreneurs realize their fundraising goals through Crowdfunding, 506(c) and Regulation A. She is a practiced speaker whose engagements are well attended and often come to produce sound bites and additional discourse. In Crowdfunding Myth, Jillian enumerates on the falsehoods that people tend to believe about crowdfunding and points prospective business owners in the right direction. For several years, Jillian taught Finance and Accounting for the BS and MBA programs at the University of Redlands, drawing on her experience as Financial Analyst, Controller and CFO for many companies, ranging from manufacturing to real estate development. Jillian may be contacted at jillian@crowdfundinglawyers.net or 323-799-1342

 


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  • stts

    All these internet “forums” should be renamed as “idiot pools”. Before the internet, idiots pretty much stayed in the trailer parks where they belonged. Because they didnt have the money or the brain power to go anywhere else. Now we got national hysteria, fake news, nigerian scamers, etc, etc. Makes life in the simpler 70s so much more predictable. And predictable means way less tylenol in a lifetime.

    Folks, this is not a scam. Its real and the “facts” are simple to grasp when you shovel out the internet bull crap that buries them. Elio has a great car idea, a great place to build them, well advanced prototypes to show what he means, and a ton of interest in the form of gobs of reservations. In fact its over $400 million dollars in reservation so far. But the down side is that his timing turned out to be a hindrance. Obama was anti gasoline cars, Obama made spectacular failures in Fiskars and Solendra, and Obamas term was coming to a close with no chance to continue private company lending with GOP obstructionism.

    So Elio was not able to secure government funding to date due mostly from government turmoil. Thats not to say that Elio doesnt qualify for government loans. Only that our government is not lending right now. The new Trump government is pro everything that Elio represents. But its a new government and is currently mired in Democrapic obstructionism. So Trump has his plate full with the fake news network than to even hear proposals from startup guys like Elio. So Elio will have to continue to try to drum up private investors and stay relevant till Trump finally can get time to fire up his ideas in the government loan programs. Clearly for now, his priorities are Tax reform and fixing Obamacare.

    So for all the idiots bent on arguing about broken promises, go back to the trailer parks where you belong. The bottom line is that Elio announces plans he wants to do. Thats not a crime. But anybody with half a brain knows that Elio cant execute those plans until he secures the funding he always said he needed. He wanted the funding 4 years ago. If he gets the funding 4 years from now, then he can begin building all those Elios. In the mean time he does what he can with the funding he did get. And so far what he has done is impressive. He has rights to a spectacular premade factory. He has fully designed several revisions of his car, and secured many of the vendors that would be needed to supply the parts. All he needs now is the production funding to finally get started. He said he would need $375 million to get going and has only raised like $100 million. So if he can find an investor to loan him over $200 million, then clearly we will start seeing Elios produced that he has already designed. Then customers will pay in full to take delivery so Elio can collect on the $400 million in presales. Then surely more sales will role in as these cars hit the streets. They are only like $7500. Lots more people will buy one because any other car loses $7500 when its rolled off the lot. An Elio purchase is a no brainer for many reasons. And thats why Elio will succeed if he can just get funding to get production started.

    So there you go. Its all simple simon. If he gets investor money like he wanted, then we all will see Elios on the streets. If he cant get production investment, then the loans he has will be yanked, the factory will be yanked, and the assets the Elio company has will be sold at auction. Because nobody has yet been able to build a car factory on just $100 million in loans. Thats life in America. Now I bet you can build a car factory in Korea for less that $100 million. But I guess we call that cheating… 🙂

  • Earl Brown

    .
    Nice article Jillian.

    Elio is typical of the dreamers of the world and investors typical of the hopers.

    The main thing I take exception to is the description of the ‘car’ : ” . . . reliable, safe, . . ” Safe? How would you liked to get smacked driving one of them. That thing would crumple like a crushed Coke can.
    .

    • Jillian Ivey Sidoti

      That was taken right from the Elio Motors offering. That is their claim.

  • Lex

    On it’s face, Paul has a great concept but looks like a bad execution. Anyone who has researched vehicle manufacturing in the U.S. will eventually be confronted with Tucker Motors. That said , NEVER underestimate the big three and the Elon Musk mafia, their whores in government and their Goober , cult like medallion fan-boys. It’s a shame, the working poor, students and commuters needed this vehicle to get them to mobile again without being screwed with a high priced , loan-sharked piece of garbage used car. My hope is that this new administration (if they were smart) will help him get those loans to make this come to fruition. America and Americans were always the underdog and now it seems, we’ve become jaded to the point of no hope, and even killing the messenger of hope. Enjoy your collapse America, you lobbied for it.

  • LMP-1

    Elio was on TV telling us that the car was going into production in June 2014 (this was announced in Jan 2013). They started taking reservations at that time and many were non refundable. By the time they got around to selling stock, they had at least 4 other delays, decided to design/build their own engine and completely redesign the chassis. The money raised from the stock offering was to go to building 23 E Series vehicles but as of toady only 3 have been built. 100 fleet vehicles were to be built at their Shreveport plant in December, 2016. None have been built.

    Elio garnered lots of interest and portrayed that the vehicle was almost done and ready for production. Here we sit 3 years after the first proposed production date with a company that needs another $376M and 76 weeks to get to production. With their past history of not meeting deadlines and financial obligations, I suspect that the the amount needed will go up and the production date will yet again be extended to past 2019 and beyond.

    In the end, many invested, based on emotion and not doing some research as to the past 7 years of the company history before offering stock.

    • Jeff

      Research, shmesearch. They had picked out NAMES FOR THEIR COLORS.

  • whaaat

    in short, Elio Motors took advantage of, and screwed it up for all other future Reg A+ offerings

    • dtk1952

      Elio didn’t take advantage of anything. They are really trying to market the vehicle.

      • whaaat

        let me guess; you put money on a reservation….

      • whaaat

        market it, yes…. actually BUILD it, apparently not.

  • Waiting, waiting, and waiting.

    So can someone sue the crap out of them, secure and grab their IP and assets, and FINISH the damn thing? (Assuming it is finish-able.)

    • fred smith the deplorable

      No assets, little IP, and a burned-out market. EMI is not worth saving, and the project isn’t worth starting over from scratch at this point in time.

  • oldprof101

    Elio was a scam from the get go. The author should not be sad but angry that the fallout is going to adversely effect the crowdfunding industry. Elio made a lot of promises that it knew it was not going to keep. It promised jobs in Shreveport. It took deposits from people promising delivery of a vehicle that did not exist. It promised investors that it would get a loan from the Department of Energy for which it did not qualify. Between the deposits and the Reg A Elio took in $40 million that simply evaporated (most likely into the management’s pockets). People who witness a theft usually get angry. This theft, as least as far as the Reg A was preventable. That should be the message here.

    • dtk1952

      And they are still trying to get the loan. Some people act like they know the whole story and they don’t even know what the first sentence says. The author did a good write-up as Elio isn’t dead yet.

      • oldprof101

        Elio was never alive. A member of the Legislature in Louisiana is calling for an investigation. They never qualified for the loan; they were insolvent at the time of the offering and are insolvent today. They were indeed taking deposits and promising delivery of vehicles in 2014. No company should ever promise to deliver a product that does not exist. Follow the money. Elio raised $40 million that evaporated. The crowdfunding portal funded the marketing campaign and took its fee. The article is correct that this is going to get a lot of bad press and impact the crowdfunding industry. This isn’t an “oops”. Backers and investors were ripped-off.

        • dtk1952

          Glad you know all about it. I for one don’t feel that I was ripped off. I’m all in at the tune of $1000 and am also a stock holder. The only think Elio promised me was a spot in the line when and IF the vehicle was produced. I have no regrets and would do it again.

          • knowhereman

            They still have stock for sale and reservations available, so you can still “do it again” now. I am sure Paul would appreciate more of your money for his early retirement.
            They NEVER met the financial requirements for the ATVM loan and now they are even further from it. We do know all about it, Everything is in the SEC filings, if there were some good news I am sure they would have included it.
            I could excuse the total ineptitude of Elio Motors if it weren’t for the fact that all of the company officers pocketed millions. Somewhere out there is another conman smiling at your response that there are people like you who “would do it again”.

          • dtk1952

            Poor Snowflake

          • whaaat

            you know, you CAN look up more than Elio sales pitches or porn on the internet.
            If you REALLY want to know what the qualifications for an ATVM Loan are, here it is…

            https://www.energy.gov/sites/prod/files/2016/06/f33/Guidance_for_Potential_ATVM_Applicants_June2016.pdf

          • dtk1952

            Wow a little intelligence shown by you.

          • whaaat

            and very little shown by you. Did you even research anything before writing any responses here?

            btw… you don’t get to refer to someone as “snowflake” and then think that you’re going to be immune from condescending replies.

          • knowhereman

            Cut dtk1952 some slack, obviously he’s having a hard time coming to terms with the money he lost. Anyway, he gave me a good laugh, I have never been referred to as a “snowflake” before. I don’t think he even gets the irony of him using the term in the wrong context.

          • dtk1952

            Just like all Libtards you suck big ones.

          • knowhereman

            Another gem dtk1952!!

          • dtk1952

            Wasn’t it though, Ashhat?

          • fred smith the deplorable

            The irony is that conservatives judge things on results, while liberal judge things on feelings. Elio Motors has always been a feel-good, but no results company. By using the terms “snowflake” and “libtard”, you are projecting that you see yourself as a conservative, but you fell for the same sales pitch that our liberal friends regularly fall for – big promises, followed by failures, which “can only be solved” by sending them more money.

            The facts have been available for a long time, but you have been drinking the Elio kool-aid instead. Sorry.

          • dtk1952

            There isn’t any kool-aid to it. I went on board knowing it was a gamble. Which Elio was upfront about, they never promised me anything except a tshirt, decal and a spot in line for the vehicle if it was produced. Hell I’ve spent more money on 12 oz curls with less satisfaction. I still believe that there is a possibility for it to happen. If it doesn’t I won’t be out that much.

          • dtk1952

            Hey Libtard, I didn’t fall for anything. I wasn’t promised anything and knew going in that it was a gamble.

          • knowhereman

            For more comic relief, check out his profile and read his comments on other threads. We have a real genius here.

          • dtk1952

            Oh no, you hurt my feelings.

    • fred smith the deplorable

      If not quite a scam, it was clearly a case of incompetence and deception. “Honest” is not an appropriate description for Elio Motors. Their honesty was limited to what they were forced to disclose by the SEC.

      Three of the four domino effects mentioned are correct, but the accountants and attorneys part is nonsense. They have been well paid, and already have in place their own safeguards. No future professionals are going to work for free, but the current ones aren’t working for free, either.

      Yes, it is sad to see this failure. What was not mention is the damage that Elio has done to the low-volume trike market. That is probably the saddest thing of all.