Buying an EV? Check the maker’s financial health, too

American automaker Fisker’s warning that it may run out of cash within 12 months absent fresh equity or debt raises a new and worrying question for car owners: What happens if your electric vehicle (EV) maker goes bust?

Modern cars are sophisticated computers on wheels, reliant on expensive batteries and regular software updates to run properly.

Consumers should extend their pre-purchase homework to include an assessment of the financial health of the EV maker and, if in doubt, consider leasing rather than buying that expensive new ride.

Amid slowing demand, high cash burn rates and price-sapping competition, there have already been several high-profile failures of EV makers, but these mostly involved start-ups that had yet to generate meaningful revenue, such as the UK arm of Arrival and Ohio-based Lordstown Motors.

Having sold almost 5,000 electric sport utility vehicles in 2024 and after setting a target of around 21,000 deliveries in 2024, Fisker

is holding talks with an automaker

– reportedly Nissan Motor – plus an existing debt holder about possible investments, which is potentially good news.

I want to emphasise I’m not implying that Fisker or any of the particular companies mentioned below will go bust. But I do think more business failures are inevitable in this sector, and I’m not just talking about Western manufacturers. Of the more than 150 Chinese new EV brands in the market today, only 25 or 30 will survive through to 2030, forecasts AlixPartners, an advisory firm.  

After Apple scrapped a years-long attempt to break into the auto industry last week, Mr Elon Musk wrote on his social media platform X that “the natural state of a car company is dead”. He should know. Tesla now has a US$575 billion (S$774 billion) market capitalisation, but it almost went bust several times before reporting its first annual profit in 2020.

Mr Musk has doubts about the longevity of rivals such as Rivian Automotive and Lucid Group because their costs are too high, but he’s hardly an impartial observer and one should not underestimate the willingness of investors to keep throwing good money after bad. Rivian’s largest stockholder is Amazon.com, which isn’t short of a penny, while Lucid boss Peter Rawlinson compared the cash-bleeding start-up’s financial dependency on Saudi Arabia to a “marriage”.  

“Before making a big purchase, consumers should ask how stable and well established is the brand and will the shareholders put their hand in their pocket if something goes wrong?” says Mr Nick Parker, managing director at AlixPartners.

Another comfort to car buyers is that bankruptcy is often not the end of the road – debts are restructured, new money comes in, or the best assets are sold. Nevertheless, there are a variety of potential headaches for customers: Vehicles may lose value, parts can be difficult to obtain and the warranty may not be fully honoured.

Customer confidence in warranties is vital when selling EVs because batteries are expensive: Nikola Corp, for example, expects that a recall of more than 200 electric heavy-duty trucks due to faulty batteries will cost around US$66 million.

When Mr Henrik Fisker’s first auto company, Fisker Automotive, went bust in 2013, customers who had paid more than US100,000 for a Fisker Karma were told their warranty coverage would be capped at only a few thousand dollars.

After filing for bankruptcy in 2024, Lordstown Motors said it was unable to honour warranty guarantees. Debtors were authorised to repurchase the roughly 35 pickup trucks sold to date for US$31,000 a piece, or less than half of the original purchase price.

A new and potentially important factor for car owners to ponder is whether vehicle software would remain supported post-bankruptcy. Modern cars rely on over-the-air updates to fix bugs and improve vehicle performance; in some cases, certain functions are available only by subscription. During its recent earnings call, Fisker spoke at length about the importance of these updates, which are helping to mollify customers who complained vehicles weren’t up to scratch. 

For a foretaste of what might happen if these updates should cease, consider the fuss recently when Nissan announced it is withdrawing a vehicle app for older versions of its electric Leaf. Customers spoke of their disappointment that a major selling point of the vehicle – remote control of functionality such as heating and charging – would simply vanish.  

Happily, customers don’t need to overthink these what-ifs and worst-case scenarios: They can opt to lease a vehicle instead. The risks of technological obsolescence and rapid EV depreciation are already strong arguments for renting rather than buying, as is the availability of subsidies in the US. The danger, however small, of an automaker running out of money makes leasing a no-brainer: Then, if it goes bust, just hand back the keys. BLOOMBERG