Tod Hynes, the founder of electric vehicle startup XL Fleet, used to keep a model of a piranha on his desk to remind him of a failed deal in Venezuela.
But the scary fish didn’t help Hynes and his team avoid an even worse deal, one that will soon spell the end for XL Fleet, once Boston’s most promising EV business with a stock-market valuation over $4 billion. After a round of layoffs and closures, the company is getting a new name, new leadership, and a new business, far removed from EVs.
Less than two years after XL Fleet went public by merging with a special purpose acquisition company, it is dumping its business of fitting electric drivetrains onto commercial gas-powered vans and trucks, merging with a Houston company that finances rooftop solar installations, and plans to announce a new name soon.
The moves follow chief executive Eric Tech’s announcement in March that XL would be searching for “transformational M&A [mergers and acquisitions] opportunities.” A few weeks prior to the public statement, Tech closed down XL’s Boston-based engineering division, shuttered an Illinois production facility, laid off 51 workers, and ended almost all of its EV product lines.
The radical pivot comes even as sales of electric vehicles boomed this year when gasoline and diesel prices skyrocketed. While manufacturers are still dealing with supply shortages, sales of new electric vehicles jumped 76 percent in the first half of the year compared to 2021, according to Kelley Blue Book.
But that hasn’t helped XL, which has seen its stock price plummet 97 percent since its SPAC deal closed in December 2020. Amid the pandemic, truck production slowed and the company never reached the lofty revenue projections it forecast for 2021. And after a report by a short-selling investment firm in March last year alleged exaggerations in those projections, XL faces an investigation by the Securities and Exchange Commission and multiple shareholder lawsuits.
With only a handful of exceptions, SPAC deals related to electric vehicles have fared poorly. Trevor Milton, founder of electric truck company Nikola, which went public via SPAC, is currently on trial for fraud in New York. In April, California-based Faraday Future fired some employees and took additional “disciplinary actions” after an investigation into fraud claims by a short-selling firm. And EV pickup maker Lordstown Motors forced out its founder last year after an investigation found “issues regarding the accuracy of certain statements” around its SPAC deal.
“Something that happens in the boom of boom-and-bust cycles, including this round of SPAC euphoria, is that investors forgot about the bust,” said Lisa Silverman, senior managing director at risk consulting firm K2 Integrity.
Hynes, who had experience developing wind projects for Citizens Energy, started XL Fleet (originally called XL Hybrids) in 2009, when batteries were far more expensive. The idea was to give gas-powered vehicles an electric boost that would improve mileage. Backed by New Balance chairman Jim Davis and Boston’s WindSail Capital and working out of space above a garage near the Mass Pike, XL designed systems that could be easily attached to the bottom of a truck without altering the gas engine. Annual revenue grew to $7 million by 2019.
In late 2020, when XL was going public, things looked promising.
“We are proud to be a leader in fleet electrification,” Hynes said at the time. Sales were forecast to grow from $20 million in 2020 to $75 million in 2021. Revenue in 2024 would hit $1.4 billion, the company forecast.
Within days of closing the SPAC merger, XL’s stock price peaked at $35 a share, giving the company a stock market value over $4 billion.
But nothing worked out as planned after that.
COVID and supply shortages crushed XL’s business of retrofitting trucks and commercial vehicles for customers such as Coca-Cola and the City of Boston. Over time, most of XL’s business focused on adding its battery-powered drivetrain to new vehicles as they were being outfitted for customers, rather than adding the gear to used vehicles already on the road. And, facing a shortage of computer chips, automakers allocated the scarce supplies to their most profitable vehicles and cut back on manufacturing the lower-margin fleet vehicles that XL targeted.
XL’s revenue dropped from $20.3 million in 2020 to $15.6 million last year — and only $3 million of its 2021 revenue came from EV drivetrain retrofitting. The rest came mainly from the acquisition in mid-2021 of World Energy Efficiency Services, an EV charging and financing company.
Hynes, XL’s former chief strategy officer and chief executive, left the company in March 2022, a few months after his successor, chief executive Dimitri Kazarinoff, was let go. Both declined to comment.
Tech, XL’s current CEO, declined to be interviewed. In a statement to the Globe, the company blamed “unpredictable near-term pressures put on our business due to recent industry-wide vehicle supply shortages” for its declining sales and said it needed to make “a swift and decisive move such as this, to transform the company and create shareholder value through strategic M&A.”
Amid the business challenges, Carson Block, founder of Wall Street research firm Muddy Waters, known for shorting stocks, issued a blistering report in March 2021, charging that XL had oversold its technology and overstated its sales pipeline.
XL fired back, saying the report contained “numerous factual inaccuracies, misleading statements, and flawed conclusions.”
Early this year, the SEC came calling, subpoenaing information about the SPAC deal, revenue projections, the sales pipeline, and other matters raised in the Muddy Waters report. XL intends to provide the requested information and cooperate fully with the investigation, the company said in a securities filing.
“It was just SPAC promoters trying to capitalize on the desire of all these new retail investors to own the next Tesla,” short-seller Block said in an interview.
Meanwhile, new CEO Tech had previous experience among vehicle manufacturers, particularly in mergers and acquisitions. He is based in Illinois and initially signaled no change in the company’s strategy. “Fleet electrification is more important than ever,” he said in a statement when he was appointed CEO last November. But he quickly changed his tune, amid cutbacks and the plan for mergers.
The company still had one major asset — the roughly $350 million in cash left from the SPAC deal.
That was more than enough to buy Texas-based Spruce Power, which XL acquired for $58 million in cash and the assumption of $542 million of debt. Spruce acquired and owns solar panels on the rooftops of about 52,000 customers, who pay monthly fees to the company. Revenue totaled $83 million for the year ended June 30, with profits of $15 million.
The acquisition is meant to transform XL. Christian Fong, the current CEO of Spruce Power, will become CEO of XL Fleet by February 15, 2023, the companies said.
“The acquisition of Spruce Power is a critical first step in our corporate transformation and will be the cornerstone of our new strategy to provide subscription-based solutions for rooftop solar, battery storage and EV charging to homeowners and small businesses,” XL said in a statement.
Block said he hasn’t researched the company’s new business but expects new financial bubbles will arise in the future.
“When interest rates are low again, the hype cycle will repeat,” he said. “This sort of thing is as old as stock markets themselves.”