Dear Elio Motors, We Need to Talk

A letter to Elio Motors (OTC:ELIO) …

 

I don’t drive motorcycles. Often on the Southern California highways, I curse lane splitting motorcycles and the danger they present to themselves and others.

I have long said to my children that I wish they would not drive motorcycles. I have asked my brother not to drive a motorcycle as I fear for his safety on the I-15.

Your product could solve my motorcycle woes and worries…if it actually existed.

Alas, it does not exist and yet, you have filed an S-1 registration statement asking the little guy to finance $100 million of a total $376 million needed to produce your imaginary product.  The S-1 is a firm commitment underwriting by Drexel Hamilton, meaning they must purchase all the stock for sale for a total raise of $100 million. It would be interesting to know the story that Drexel Hamilton tells its investors when they peddle the stock. Does it go like this?

“Don’t worry, even though this company only has $4,444 in cash and needs an additional $276 million to be successful, your investment is a good one.”


I am not out of place for calling it imaginary and I will not apologize. I was empathetic and hopeful in the last article I wrote about you. Now, not so much. This S-1 registration statement, I fear, will hurt the most vulnerable of investors. You have no real plan to finance operations.

The facts do not provide any indication that if you do indeed raise this $100 million you will have additional financing to cover the $376 million required:

  1. You currently have $83 million in debt including customer reservations of about $29 million. This debt, sadly, doesn’t even cover all of your upcoming and ongoing obligations. According to your most recent 1-K filed with the Securities Exchange Commission, by your own admission, you need to come up with $41 million in less than a year to cover such obligations. There goes $41 million of the $100 million.
  2. You have multiple solutions for additional financing. Multiple potential suppliers have committed to investing in the development and production of the cars including Aisin World Corporation of America to invest approximately $37 million of the $76 million to develop the transmissions; Linamar Corporation has committed to provide $45 to $50 million in equipment; and Hyundai DYMOS will incur $1.8 million in capital equipment. However, none of this is enough to satisfy your needs and most of it isn’t even cash. How were these values derived? To even reap the benefits of these potential investments requires the additional investment by Elio and the realization of multiple milestones.
  3. You hope to receive a loan through the Advanced Technology Vehicles Manufacturing (ATVM) Program.  To me, your discussion of this program and your hopefulness of getting a loan from the program is misleading. The Advanced Technology Vehicles Manufacturing (ATVM) Program was established by Congress to support the production of fuel-efficient, advanced technology vehicles and components in the United States. From your 1-k filing, it seems that there are four stages to the application process and that you have successfully completed stage one which determines that you are indeed for the program. However, you have not made any further progress since January of 2015. Exactly when do you plan on finishing the other three stages? One of the milestones is that you must be able to prove that you have appropriate financial backing to accept such a loan. Perhaps I am missing something. I do not understand, in your current state, or even with an additional $100 million, you will be able to achieve this. Therefore, you will need to rely on your contingency plan of “If [we are] unable to obtain a loan under the ATVM Program, it will rely on funding through the issuance debt and/or equity securities, customer reservations, and possibly CAFE credits.”
  4. You already deferred your lease with Shreveport Business Park. It is September. The deferral ends in December or until the commencement of production. What’s the plan after that? You already had to exchange over $5 million in payments for stock and warrants. What if SBP doesn’t want to take worthless stock in exchange for payments anymore?
  5. You already underestimated funding requirements. In your most recent 1-k, you admitted that you underestimated your requirements by about $64 million, from about $312 million to $376 million. However, this is incredibly disingenuous as in your Form 1-A dated November 20, 2015, you estimated your additional needs to be a mere $240 million.

Those that made a reservation for your product are those that are looking for efficiency both in travel and finances. Most likely, those people who made these reservations, are also your investors. I would love to take a poll of your investors and find out exactly who they are: how much money do they make? Why did they invest? What is their net worth?

My guess is that they are your typical American who was looking to get in on the next big thing. Good for them. Unfortunately, you are not the next big thing and you are going after the wrong pot of gold.

Please find an investment banker, private equity fund, or venture capitalist to take the risk, but don’t ask the little guy.


 

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.


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  • LMP-1

    A few things to consider. ESG is a private company founded in 1999.
    There were three founders Paul Elio, Robert Glaspie and Hari Iyer
    Sankara. (Elio Glaspie Sankara). Here’s the info from the AZ department
    of corporations:
    http://ecorp.azcc.gov/Details/Corp?corpId=%2008677356

    So, there was another cheap high efficiency car to be built in Lousiana
    and trying to get a $320M ATVM loan from the DoE. It was called the
    V-Vehicle. Guess who was doing the engineering for the V-Vehicle? It was
    ESG where he was the co-founder and President. That was from 2006-2009.
    In 2001, Hari Iyer became Vice President of Engineering of V-Vehicle
    (which became Next Autoworks). When V-Vehicle/Next Autoworks went out of
    business, Hari went onto Envia Systems. When that went out of business
    he became one of the BOD of Elio Motors and then the COO or Elio Motors.

    Envia Systems: http://www.greencarreports.com/news/1089261_collapse-of-battery-startup-envia-what-really-happened

    V-Vehicle: https://www.fastcompany.com/1695394/t-boone-pickens-v-vehicle-now-next-autoworks

    Hari’s resume according to Elio Motors: http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=11025463

    Then he left Elio to start YoYo car sharing in 2016. Guess what? Hari is
    the co-founder and CEO, Paul Glaspie is Director of Operations and Paul
    Elio is an advisor.
    https://www.fundable.com/yoyo

    As you can see, this sounds pretty familiar. Efficient/cheap car, ESG
    Engineering, built in Louisiana and the ATVM loan. Only difference is
    that V-Vehicle was funded privately and Elio Motors was not. Thus, the
    reason why everyone forgot about V-Vehicle but is up in arms over Elio.
    The private funding ended after 3 years and V-Vehicle tried to reinvent
    themselves but it didn’t work. This is why Elio went the route of public
    funding because you (the general public) realize something is wrong,
    way after you gave them your money.

  • LMP-1

    I see that you reference some SEC filings but it is interesting if you look at a few more over the years:
    Here’s some information that you can get from the SEC filings over the years with Elio motors:

    11/20/15 – Amount to production – $264.4M

    4/30/16 (SEC filing for end of 2015) – Amount to production – $311.3M

    9/30/16 (SEC filing for mid 2016) – Amount to production – $316.9M (this
    is the first time they list a profit from future reservations of $25.5M
    and profit from production of $18.2M). The new amount of production
    becomes $273.1M.

    5/2/17 (SEC filing for end 2016) – Amount to production – $376.1M (there
    is no listing of profit from future reservations and sales) For 2016,
    Elio raised $16M from the IPO and $26M from all in reservations.

    8/3/17 (SEC filing for NASDAQ) – Amount to production – $531.2M (they
    list a profit from future reservations of $110.5M and profit from
    production of $44.1M). The new amount of production becomes $376.6M.

    For 2016, Elio raised $42M yet the amount to production went up from
    $264.4M to $376.1M. How do you raise $42M but the amount to get to
    production goes up $111.7M during the same time period? Then, Elio is
    counting on $110.5M in future reservations and $44.1M on profits from
    vehicle sales. It sounds like that Elio will need to cut many items just
    to get the vehicle to production because you can’t get profit on
    vehicles you haven’t sold yet.

    The $110.5M in future reservations
    seems to be a bit bold. That would be 110,500 $1K all ins. It took Elio 4
    years to get 65,341 and just over 57K are all ins.

    As we have heard, the devil is in the details and as we know, very few
    ever read the SEC filings or even go over them from the beginning.

  • Great Article Jillian.

  • This is so frustrating. I will start by stating that, yes, you are 99.9% correct about everything. All the financials. All the mistakes and misstatements. All of the fumbles, broken promises, and pushed-back deadlines. All of it is true. Paul Elio is really bad at this and it’s a real shame. You are wrong, very wrong, about one thing, and it’s critical that you understand this.

    The car IS real.

    The important distinction is that Elio has done all of the engineering footwork, internally and with partners, and has built a number of iterations, as well as a handful of P5 and, one or two E-series. They exist, can be driven, and can easily be replicated on a production line.

    The fact that Mr. Paul Elio and Co. have utterly bumbled the business and finances part of the entire process doesn’t change the simple truth that they have created something awesome. Now, it just needs to get into the hands of someone who can business the crap out of it, finish off what needs to be finished, and start pumping these things into a market that is desperately wants and needs some kind of revolution in transport.

    As I’ve said elsewhere, Paul’s eyes are just too big for his stomach. He has a rather amazing dream, but lacks the business sense to make it work. And for those who think that the market will never support such a “radical” vehicle, check out Arcimoto. Those guys are doing it right (so far).

    • LMP-1

      According to the SEC report dated
      8/3/17, Elio Motors needs $85.8M to complete Research Design and
      Develop of the vehicle. So far Elio motors has spent a total of
      $62.5M in Research Design and Develop. So, that tells me that the
      Elio is not done because that comes out to a total of $148.3M for
      Research Design and Develop. According to my math Elio is only 42% of
      the way to completing the car when it comes to what they have
      spent.

      If you have other information, please present it
      because the numbers I quote, come straight from Elio Motors. Elio has
      built a total of 8 vehicles (again in the SEC report) and 3 of them
      were E-Series. Elio was supposed to build 25 E-Series as listed on
      their 11/20/15 SEC filing and that’s why they needed to do an IPO and
      raise $25M. Elio only raised $16M. From their SEC filing dated
      11/20/15, here’s what the 25 E-Series vehicles were to be used for:

      1. Underhood thermal & HVAC testing– 4 vehicles
      2. Electrical – 12 vehicles
      3. General inspection – all vehicles
      4 Serviceability – 1 vehicle
      5. Powertrain (to include altitude testing, emission certification, engine/transmission development &
      calibration, economy and software development & verification) – 9 vehicles
      6. Interior – 4 vehicles
      7. Noise, vibration & harness – 4 vehicles
      8. Steering – 1 vehicle
      9. Ride & handling (to include vehicle turning, objective measurements, NHTSA Fish Hook, tire wear and electronic stability) – 6 vehicles
      10. Performance (to include engine/transmission shift validation, 0-60 mph, hill climb, cold temperature start-up and drivability and maximum speed) – 1 vehicle
      11 Fuel systems – 1 vehicle
      12. Brakes – 4 vehicles
      13. Body systems – 12 vehicles
      14. Durability – 7 vehicles
      15. Safety tests – 8 vehicles

      Elio says they need the 25 vehicles but have only produced 3. I don’t understand how the Elio could be complete. When you say, “The important distinction is that Elio has done all of the engineering footwork, internally and with partners” the info that Elio has provided in SEC filings does not agree. Unless there’s some other info out there that indicates that they are done, that needs to be changed in the SEC fling. If that’s the case, the
      company would look much better and they need to let the SEC and
      shareholders know this.

  • Lex

    Every day that passes, the “tin foil hatters” are right. There is no doubt in my mind at this point that the big three, their dealer welfare queens and their corrupt, deep state whores in government will not allow this vehicle to come to market. So went Tucker, so goes Elio. It’s too bad, the working poor and middle class needed and wanted this vehicle.

    • LMP-1

      This has nothing to do with the Big 3. If the Elio was such a great idea, why hasn’t someone else built one? Elio has in their SEC filings that they have no patents and only a copyright, thus anyone could build a similar vehicle. Why hasn’t the Germans or Asians built one. Gas is $5,50/gal in Germany and they reward people for buying fuel efficient vehicles. Why doesn’t Geeley build one and sell it through their Volvo dealers here in the US? The Chinese build lots of small cars and they could have had their own Elio to market 5 years ago. As we all know the Big 3 have no power whatsoever when it comes to what the Chinese want to do. I doubt that the Chinese would walk away from a vehicle that gives such great theoretical fuel mileage and at a theoretical low price. For some reason, they do.

      As for Tucker, he built a modified Czech Tatra that came out in the mid 30’s and tried to tell everyone it was innovative (the design is quite similar to a VW Beetle). Plus, they drown themselves in R&D costs because they started with one idea and then switched (i.e. aircooled flat 6 with no camshafts became a watercooled one with cams, they searched junkyards and put in Cord transmissions because their dual torque converter system didn’t work). The guy sold luggage and radios for a car that didn’t exist. It was a failure but in Hollywood we like to make it into a big guy squeezed out the little guy.

      Also, if the Big 3 is true, Tesla would have never made it past the Roadster. Yet they did somehow.

  • Syndicate Path

    I’ll direct you to the 2nd post (over a year old) our attorney and sage, Irwin Stein, made regarding Elio (and others) that points out the value of a regulatory process so often disparaged. http://laweconomicscapital.com/2016/06/regulatory-compliance-in-crowdfunding/

  • John Lewis

    This is, and always was, a vaporware project. The numbers never made any sense when critically examined, and anyone that placed their money with this firm has lost it. It will never be recovered.

  • Roland Rick Perry

    You go girl !

    On the other hand as a long time biotech investor, you never know. And I think even the little guy knows this is a long shot.