Saleen Automotive is raising capital at a $24.5 million pre-money valuation. With a revenue of more than $2.4 million in 2021, this yields a valuation-to-revenue multiple of 10x. This is a bit on the higher end when compared to similar companies. For example, Tesla, which sells regular electric cars and is getting into the electric sports cars and supercars market, has a multiple of 11.4x. On the other hand, Formula E, which manufactures electric motorsports vehicles and had a revenue of $220.5 million in 2019, has a multiple of 4.5x after being valued at $1 billion. Mercedes-Benz, which also started manufacturing electric supercars, currently has a multiple of 1.2x. So although Saleen’s multiple is within the range of similar companies, it is still on the higher end. This is especially true when taking into account that Saleen’s revenue has been drastically declining. Its price will become even more overvalued if it maintains the same poor revenue performance over the next few years.

Saleen offers both sports cars and supercars (the latter being more luxurious and high-powered versions of sports cars). So KingsCrowd included both sports car market and supercar market coverage in this report. The global electric sports car market is estimated to be worth $117 billion with a growth rate of 18.7%. The US accounts for 17% of  global electric car sales, which puts the US market size at $19.8 billion. Saleen’s cars have top speeds between 180 and 200 mph, which accounts for about 36% of the global electric supercars market share. This puts the company’s market at roughly $7 billion. 

The electric supercar market has been gaining popularity not only because it is better for the environment but also because of the cars’ rapid acceleration. But while electric cars are able to accelerate faster than gas-powered cars, gas-powered cars still have higher top speeds and can sustain higher speeds for longer periods of time, which could affect how much traction electric supercars can gain.

And although the electric sports car market is rapidly growing, it is still rather small. It is also very competitive, with established giants such as Tesla, BMW, Porsche, and Mercedes-Benz. These companies, unlike Saleen, have a lot of capital and have overall solid reputations. They also manufacture gas-powered cars that have already generated billions of dollars in revenue. 

Additionally, the supercar market in general is not very lucrative. It is declining at a rate of 0.4%. This is due to many factors, including supercars’ high costs, impracticality (drivers typically can’t reach top speeds in normal and legal driving conditions), and depreciation in value. Although the electric supercars market is growing rapidly for now, it could still plateau and decline in the future.

Overall, Saleen operates in a niche but rapidly growing electric sports car market that combines speed and sustainability. But the company’s well-known competitors make it hard for Saleen to establish itself as the leading brand for electric supercars.

CEO Steve Saleen founded Saleen in 1984. Saleen is a former professional race car driver. He graduated with a business degree from the University of Southern California. Saleen has won several races, including the Pacific Coast Championship, and was a recipient of the Legends of Auto Award, which is awarded to recognize pioneers in car racing. Saleen’s life and experience revolves around car racing, which gives him credibility. And there is no questioning his dedication to the field. However, he does not seem to have any other business or managerial experience besides being a race car driver and managing Saleen Automotive.

Other key team members include CFO Michael Roe, Vice President of Marketing Gregory Stacy, and Vice President of Engineering Corry Davis. Roe has more than 25 years in finance and has held several CFO and managerial positions. Stacy held executive producer positions for more than 20 years, and Davis has more than 17 years of experience in automotive and mechanical engineering.

The team members complement each other in terms of skills, and the founder has extensive and relevant experience. However, the main concern is that Saleen Automotive has existed for nearly 40 years and has not shown much progress compared to other supercar manufacturers, both in terms of revenue and brand recognition. This raises the question of whether the team has managed Saleen’s finances well and whether their qualifications will be enough to improve the company’s poor financial performance.

Saleen Automotive is not the first to sell electric supercars or bring them to the market. There are a lot of established and emerging competitors that have similar or better specifications. The Saleen S5, for example, accelerates from 0 to 60 mph in less than 2.5 seconds and has a top speed of 200 mph. Competitor Tesla’s Roadster takes just 1.9 seconds to accelerate to 60 mph and has a top speed of more than 250 mph. Another competitor is the Audi e-tron. which has a top speed of 124 mph and gets to 60 mph in 5.5 seconds. Although this is inferior to Saleen S5’s specs, the e-tron’s starting price is less than $66,000. It is unclear how much Saleen electric supercars would cost. However, in the past, its non-electric supercars such as the Saleen S5S Raptor cost around $185,000, so it seems probable that Saleen’s electric vehicles would have similar prices. This is also not much cheaper than Tesla’s Roadster, which costs around $200,000 with better specifications. Another competitor is Drako Motors’ GTE, with a top speed of 206 mph and a possible acceleration of less than two seconds. The car costs $1.2 million, however, which makes it far more expensive than the Saleen S5. Other well-established brands that have developed or are developing electric supercars, such as Ford and Mercedes-Benz, also pose big competition for Saleen. 

Saleen’s truck prices range between $67,300 and $85,000. This is pretty similar to competing electric trucks. Atlis Motor Vehicle’s trucks, for example, range between $45,000 and $69,000, and Rivian, a publicly traded company, sells its electric truck starting at $69,000.

Also, most of Saleen’s cars are not manufactured by the company from scratch. Rather, Saleen takes a car model, such as the Tesla Model S or Ford Mustang, customizes it to the Saleen brand, then sells it. Since the cars are not completely original, customers may prefer simply buying from the manufacturers instead, especially if there are cheaper alternatives with similar or better performance specifications. Saleen still hasn’t revealed some important details about the specifications of its new electric supercars, including horsepower and range, which makes it hard to know what truly differentiates Saleen’s supercars from competing ones.

Saleen performed very poorly in 2021. The company’s revenue decreased by 91% from March 2020 to 2021, going from $28 million to less than $2.5 million. This is very concerning. The company claims the drastic drop is due to supply chain problems from the COVID-19 pandemic. But competitor Tesla increased its revenue by about 71% during the pandemic. So it seems unlikely that COVID alone caused Saleen’s revenue problems. It is questionable whether Saleen will be able to bounce back in the future. 

Saleen’s problems go back much further than 2021. In 2013, Saleen became a publicly traded company through a reverse merger — the acquisition of a private company by a public company — but got delisted in 2017. Its stock price fell by 66% in only five days, reaching nearly $0. The company then got suspended from trading by the SEC because it failed to file periodic reports to provide its financials for the fourth quarter of 2015. 

Saleen also has a history of legal problems. Because Saleen has always been a risky investment, investment fraud attorneys have recovered more than $170 million for Saleen investors. In 2017, a Texas Ford dealership sued Saleen after the company failed to deliver its supercars and $22,000 in upgrades. And back in 2014, Saleen reported to the SEC that it had just a little more than $7,000 in cash while owing more than $5 million to suppliers. All this indicates that the company has a history of failing to meet demands, and it’s highly unlikely that COVID-19 is the only reason for its recent poor performance. 

Saleen’s cash flow is also very concerning. It reported a loss of $3.3 million in 2021 with cash of only $404,000 and liabilities of more than $12.3 million. With its declining revenue, the company won’t be able to manufacture its cars. Saleen has a gross profit margin of 3%, which means it takes a lot of cash to manufacture its vehicles, and Saleen’s margin level is below that of its competitors. Tesla’s total gross profit margin stood at 25.3% in 2021, while Mercedes-Benz had a margin of 24.6%. With very little cash on hand, Saleen might not be able to deliver the supercars it promises. This also raises concerns about the company’s manufacturing capabilities. A lot of Saleen cars are modified models of Tesla, Ford, and other brands, so manufacturing should be easier and more efficient, not the opposite.

According to the company, its poor financial performance is mainly due to its failed partnership with China. The company attempted to form Jiangsu Saleen Automotive Technology in order to manufacture and distribute supercars in China. But according to Saleen, Chinese shareholders committed fraud against the company and stole intellectual properties. This led to Saleen losing a big market opportunity in China. Although this is not Saleen’s fault, the founder’s lack of a legal and financial team at that time likely made the situation worse. Furthermore, even after operating for nearly 40 years, the company has been unable to reach its goal of helping young drivers enter the racing world with cheaper options. Overall, prospective investors should note that the company’s track record of poor performance poses a massive risk.

Investing in Saleen Automotive carries a huge risk. Saleen’s return on investment is very doubtful. In 2013, Saleen became a publicly traded company but got delisted in 2017. Its stock price fell by 66% in only five days, reaching nearly $0. The company then got suspended from trading by the SEC because it failed to file periodic reports to provide its financials for the fourth quarter of 2015. Additionally, because Saleen has always been a risky investment, investment fraud attorneys have recovered more than $170 million for various Saleen investors. There is no guarantee that this round of investment will generate any return to investors since the company failed to generate returns when it was public in the past. 

Secondly, Saleen has a high legal risk. In 2017, when Saleen failed to deliver the modified Mustang supercars it promised and also failed to provide $22,000 in upgrades, a Texas Ford dealership sued the company for fraud. 

It also takes Saleen a long time to deliver its supercars because of its low cash on hand. This has been an ongoing problem the company has not been able to resolve — and it poses a threat to Saleen’s survival. As of 2021, the company has a cash runway of 1.4 months, which means it can only survive a little longer than a month without generating income. A company needs at least six months of runway to be able to survive and sustain itself. Saleen’s high liabilities just increase the risk that the company could go under. And since COVID-19 has hurt the supply chain industry, the company might struggle even more to deliver its supercars. 

Lastly, Saleen’s maximum offering amount is $30 million for this round, and its shareholders will receive 30% of the capital raised. This raises questions as to why a significant amount of the raise will go to shareholders instead of working on the product. If the company truly has potential in the future, then it would be better for shareholders to hold on to their shares to see a bigger return on their investment. Overall, there are several red flags surrounding Saleen that indicate it is a highly risky investment. 

Saleen’s electric supercars are not highly differentiated from those of its competitors — including Tesla, Audi, and Ford — which may not make Saleen’s cars attractive for customers. Even if the company manages to make highly differentiated cars in the future, it has shown very slow progress over its nearly 40 years of operation. This is due to many reasons. Saleen significantly lacks capital. In its offering circular, Saleen admits that it will need to raise significant amounts of cash in order to develop and manufacture its vehicles and that it might fail to do so. This is no surprise since it has failed in the past to deliver cars to car dealers. And with the supply chain problems from the COVID-19 pandemic, it will be even more difficult for the company to do so. This has already been reflected in the company’s revenue, which decreased by 91% from 2020 to 2021. And besides failing customers, Saleen has also failed investors in the past. Its stock crashed to $0 when it was publicly traded, and it was not able to meet SEC requirements.

The company’s reputation has plummeted over the years. In 2015, a user on Reddit, one of the biggest online discussion platforms, accused the company of being a scam and a “Ponzi scheme” investment. Although Saleen sued the redditor and things settled, the news became popular, and it still was a reflection of how some people viewed Saleen. And that’s not the only time the company has run into legal trouble. Saleen was also sued by a Ford dealership in 2017 for failing to deliver promised supercars and $22,000 in upgrades.

Lastly, Saleen operates in a competitive and a rather niche market. Although the global electric sports car market has been growing at a rate of 18.7% annually, this could be because it is still a very new and hyped-up market. The general supercar market has been seeing a decline of 0.4% annually due to the cars being expensive and impractical. Therefore, it is possible Saleen’s target market might reach a maximum and start to decline later. 

Supercars are meant to be a status symbol, with impressively high speeds and rapid acceleration. Saleen offers speedy sports cars and supercars (both electric and gas-powered) at reasonable prices, which could make it attractive to customers. Its Saleen S5 has a maximum speed of 200 mph, acceleration from 0 to 60 mph in 2.5 seconds, and a potential price of $185,000 (based on one of Saleen’s non-electric models). The electric sports car market is also growing rapidly and is unlikely to plateau anytime soon. The global electric sports car market is projected to grow at a rate of 18.7%, reaching $232.4 billion in 2025. This means Saleen still has time to grow and capture a share of the market. 

In its current raise, Saleen is highlighting its new electric sports car (though it offers gas-powered vehicles as well). What differentiates electric supercars from gas-powered supercars is acceleration. Gas-powered supercars tend to have higher top speeds, but since most people have few opportunities to legally drive cars at top speed and doing so is unsafe, some consumers may not consider that as important. Lastly, Saleen’s founder is a recognized professional driver with years of industry experience. Besides the expertise he brings to the company, his network also provides Saleen a channel for future partnerships.

With the shift toward green energy, supercar brands have been developing electric models that are both speedy and sustainable. Saleen Automotive manufactures its own electric and non-electric supercars and builds cars based on other models, including Tesla and Ford. Saleen was founded by a former professional race car driver with a lot of experience in the industry. 

However, Saleen’s investment risks far exceed its advantages. Although it was founded nearly 40 years ago, Saleen has performed poorly over the years. It has always been low on cash and has failed to deliver vehicles to clients, which resulted in a lawsuit against the company. Saleen has also been delisted from the public market after failing to meet SEC regulations. Currently, Saleen’s finances are suffering with high liabilities and declining revenue. The company also has a high valuation-to-revenue multiple. It operates in a niche market with established competitors, and its products are not very differentiated. For all these reasons, Saleen has been rated an Underweight Deal by the KingsCrowd investment team.

For questions regarding the KingsCrowd analyst report or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Yasmin Sharbaf, April 27, 2022.