Numerous electric vehicle startups are unsuccessful for this reason.

Recent high-profile failures in the electric vehicle industry have led several startups to underestimate their capital needs by billions of dollars, according to industry insiders.

Over the past decade, at least 30 electric vehicle (EV) companies have either halted their operations, gone silent, or faced the possibility of bankruptcy, according to AutoForecast Solutions, an industry research and forecasting group. These companies have struggled to bring products to market or go public, particularly through Special Purpose Acquisition Companies (SPACs).

"Mark Wakefield, managing director at AlixPartners, stated that Tesla is the first Western automaker to start in half a century, with Rivian and Lucid being the next two closest. Both of these companies have raised $10 billion, making it interesting to see other small startups that raise $1 billion or $2 billion and think it's enough. However, Wakefield emphasized that this is not even close to the amount needed to compete with the big players in the industry."

The EV market has gained significant support from governments striving to achieve climate objectives, and has attracted the interest of Wall Street, leading to immense success with investors. As a result, it has been dubbed a "cult stock" by skeptics.

In 2023, Tesla held more than 50% of the EV market in the U.S., sold over 650,000 vehicles in the country, and generated more than $82 billion in global vehicle sales.

Nearly 8 million units of EVs are expected to make up 46% of new vehicle sales by 2030, despite slower-than-expected adoption.

"According to Pavel Molchanov, managing director at Raymond James, startups are drawn to large, untapped markets. The first slide in a venture capital pitch is typically devoted to determining the size of the market we're targeting."

But reality sets in soon enough.

"According to Wakefield, starting a car company is more attractive now compared to 10 years ago. However, compared to starting a new social media app or a new consumer service, it is challenging to start a car company. Wakefield emphasized that the capital returns in the car industry are not very attractive, and it is a highly capital-intensive and competitive industry."

Even large corporations in other sectors that had planned to enter the automotive industry have abandoned their plans. Apple and Dyson, both well-funded companies, have discontinued their car projects.

The current state of the auto industry in America resembles its early days in some ways. In the early 1900s, there were numerous small automakers and parts firms scattered throughout Detroit and the surrounding area. After a decade of consolidation and numerous failures, only a few U.S. companies remain today: Ford, General Motors, and Chrysler, now part of FCA.

The companies that excelled in the past consolidated and brought their supply chains in-house. This is happening again in the EV industry, with Tesla and BYD being highly vertically integrated, similar to GM's approach when it became industry leaders, said John Paul MacDuffie, a professor at the University of Pennsylvania's Wharton School of Business.

MacDuffie stated that despite the current surge of new firms, history suggests that it won't persist.