The collapse of Silicon Valley Bank (SVB) has sent shockwaves throughout the tech industry, with many early-stage companies waking up last Friday to suddenly find some or all of their assets locked up in a bank that is now insolvent. The bank’s collapse is particularly significant for companies in nascent markets, including the electric vehicle (EV) charging industry. In this article we’ll explore possible impacts that the second-largest bank failure in US history may have on the emerging EV infrastructure market.
Recap of SVB’s collapse
There’s a good chance that before this weekend, you had never heard of Silicon Valley Bank. SVB started 40 years ago with a focus of serving technology companies in Silicon Valley, then later the rest of the United States and now the world. Since its formation, SVB has steadily grown its total assets under management. Immediately before its failure, the bank had over $200 billion in assets, making it the 16th largest commercial bank in America.
Despite being a household name within the tech industry, SVB was relatively unknown to the rest of Americans. Most of SVB’s tech-forward clientele accessed the bank’s services online, and SVB only maintaining 17 branches through the United States.
As far as we know, Silicon Valley Bank was fully in compliance with its regulators’ at the time of its collapse. The fundamental financials of SVB were sound. So why did SVB fail?
It all comes down to interest rates. Back in 2021, an unprecedented amount of money was invested into tech companies by venture capitalists (VCs). Many of these tech companies bank with SVB, leading to a huge influx in deposits. In order to keep their clients’ money safe, SVB purchased a large amount of US Treasuries in 2021 when interest rates were low.
Little did the bank know that inflation would skyrocket in 2022, causing the Federal Reserve to drastically raise interest rates. As a results of interest rate increases, the 10-year Treasuries purchased by SVB back in 2021 had decreased in value significantly by March 2023.
On the evening of Wednesday, March 8, 2023, Silicon Valley Bank announced plans to raise funds to shore up its balance sheet after unloading some particularly devalued US Treasury bonds at a loss. The market did not respond well: the stock of SVB’s parent company dropped 42% on Thursday morning and the founders of tech companies began fearing a run on the bank.
By the end of business hours that same day, SVB clients had initiated $42 billion in withdrawals. By the next morning (Friday, March 10, 2023), the bank had a cash balance of negative $958 million and was declared insolvent by California’s bank regulator.
Big tech vs. small tech
While it’s easy to lump all the companies in Silicon Valley together, there’s a huge difference between “big tech” and “small tech”.
Big tech includes companies like Google, Microsoft, Amazon, and Netflix. Similarly, “big auto” includes electric vehicle manufacturers like Tesla, Volkswagen, General Motors, Ford, and others.
While big tech and big auto companies may have had some exposure to the SVB collapse, most of these deca-billion dollar companies have spread their cash across multiple large banks.
The companies that Silicon Valley Bank primarily serves are not big tech: they are startups and small companies just getting off the ground. Many of these companies only have a few dozen employees and may have relied on SVB for all their banking needs: accepting payments, paying vendors, running payroll, and keeping cash safe.
This is precisely why the EV charging industry will be more heavily impacted by SVB’s collapse than the broader electric vehicle industry. Car manufacturers likely did not bank with SVB, but many of the emerging companies building EV charging solutions did.
How EV charging companies will be impacted
Any EV charging company that banked with SVB has a lot to deal with right now—whether they are a hardware manufacturer, software provider, turnkey installer, or other innovator in this new market.
Companies that kept all their cash with SVB and were not able to get it out last Thursday are in the most difficult position. This week, they may struggle to make payroll, pay suppliers, or otherwise operate their business as usual.
Even companies that did not have all their cash with SVB may be impacted. SVB provided venture debt to thousands of startups. While many traditional SaaS companies use venture debt solely for runway extension, EV charging companies have different uses for venture debt. As just two examples, cleantech companies often use venture debt for project financing or to support their hardware-as-a-service business model. Assuming these businesses run responsibly, these are a very appropriate uses of debt financing—which have now been abruptly halted for SVB-banked companies.
Finally, there’s a whole range of indirect impacts of the SVB collapse. Many VCs bank with SVB and have stopped writing investment checks until the situation resolves. Early stage EV charging companies that are in the midst of raising funds may have a hard time closing their financing round. The collapse of the 16th largest US bank may also put a damper on innovation and economic growth overall. Larger companies will be hesitant to kick off pilot projects, RFPs may get delayed, and the much-needed deployment of new EV chargers may slow down.
Luckily, the Federal Reserve published a press release earlier this evening announcing they would cover the deposits made by SVB clients. This means that companies with money at SVB will regain access to their funds as soon as Monday morning.
While the worst-case scenario has been dodged thanks to government intervention, only time will tell the full reprecussions of this shocking event.
SVB and sustainability
Prior to collapse, Silicon Valley Bank had a strong focus on cleantech and sustainability. In January 2022, SVB committed to provide at least $5 billion in loans for sustainable initiatives by 2027.
SVB banked many EV charging startups, as well as other companies in renewable energy, sustainable agriculture, battery technology, and more. SVB brought industry-specific expterise and connections that larger banks simply couldn’t offer.
SVB was ChargeLab’s main banking partner in the United States. Luckily, we were able to minimize our exposure before the bank closed last week. Still, we’re devastated by the collapse of the bank. All of our interactions with SVB were highly professional. They deeply understood our needs and tailored their products to us. It is hard to imagine another bank filling the essential role SVB played in the tech startup ecosystem.
Conclusion
This is still an evolving story. The worst-case scenario that many companies feared of losing all their deposits has been avoided thanks to intervention by the Federal Reserve. But the long term implications of this unprecedented event are still unknown.
EV charging remains one of the most dynamic and fastest growing industries in America. Ultimately, EV charging will weather this storm. But the fact remains that we desparetly need more EV chargers in North America. Any macro-economic event that slows the deployment of new EV charging technologies will hurt us all in the long run.
For our part, ChargeLab will continue working to deploy more EV chargers, and to deploy them faster.
