Thoughts on EV Investing

FI Fighter returned from his self-imposed exile with a renewed passion.  Now I’ll be the first to admit that his investing style is a little (ok, maybe a lot) more on the fringe than mine, but his concepts and theories are well-reasoned.  Perhaps the downside to his methods as the timing – not in the sense of timing the market but in having a measure of foresight in developing trends. Being ahead of the curve tends to have drawbacks as Elon Musk can probably attest.

He returned May 18th with a series of three posts/podcasts, one of which garnered my attention.  His views on metals – in particular Lithium – seem to resonate with me. I agree with his general view of market direction, our disagreement would be in the investment manner.  In short I prefer a greater margin of safety with a ‘proven concept’ where he’s all-in on a ‘plausible theory’.

What grabbed my attention was not the segment on junior miners but Tesla’s Supercharger stations.  I’ve never been a big Tesla fan, but assuming they can stay one step ahead of the creditors, charging stations may be a key towards profitability.  Similar to the old razor blade analogy.

Key to this theory is catering to the masses in a growing monopolistic market preferably with significant barriers to entry.  For a while appearances were rosy in this regard. Yet seemingly out of nowhere, someone has to rain on the parade. Last month a news report crossed my desk regarding one of my companies, ABB, being awarded a contract by Electrify America.  The press release states:

ABB has been selected to supply its Terra HP charging stations as part of the biggest electric vehicle infrastructure project to date in the United States.

What’s up with the lack of marching bands, no hoopla or fanfare from the White House or even a modicum of acknowledgement that any infrastructure project was off and running?  It’s possible there’s disbelief in the virtues associated eco-friendliness. It’s equally possible the lack of embrace is a result of it not being their idea. As early as 2015, there was at least one analyst touting the growth to come in the car charging space.  Now that 2018 has arrived (and am currently (still?) awaiting FI Fighter’s blog response to my query), I figured it was time to cast my spotlight on this space as potential opportunities are always of interest to me.

Although the EV charging space is immature, it has evolved over the past few years largely as a result of Tesla driving the growth in this market.  Trendlines are indicative of high growth as new electric models are introduced and the concept becomes more mainstream. Getting my crystal ball off the shelf, I try to envision what a futuristic world holds in this regard.  The model most relevant is that of present-day gas stations which in turn were first envisioned in 1905.

The critical difference is EVs can receive a charge overnight from home reducing the number of commercial ventures that can be viably supported resulting in longer rollout cycles and – at least initially – a lower ROI.  Meaning, deep pockets and a long-term mindset are necessary attributes. This is alluded to in Debra Fiakas’ analysis.

Today there is traction forming with the semblance of a nation-wide – or even a worldwide – network forming.  There are headwinds, notably in the capitalization requirements. The marketing approach is beginning to coalesce around strategic partnerships (aka, monopolistic moats).  Example: the hotel in which I am a current resident of has EV parking through Great Plains Energy (GXP) via the ChargePoint network.

I foresee four companies emerging as the leaders: Tesla (TSLA)  with the first mover advantage, Chargepoint with their private equity backing, SemaConnect with Venture Capital funding, and Electrify America – arguably the best capitalized.  Car Charging Group (CCGI) (rebranded as Blink) appears to be fading. Tesla is more proprietary while the others are seeking the broader market.  Establishing industry standards is key to greater acceptance.

The reason for the new kid’s (Electrify America) frontrunner status?  They are wholly owned by Volkswagen (VLKAY) with a $2 billion funding commitment.  This endeavor is the government’s punishment for their 2015 diesel-emissions cheating scandal.  They are currently partnering with Greenlots (funding coalition includes SO; NGG; XEL; AEE; GXP; FTS; AGL; AVA (HRNNF); MGEE; TKECF; OGE; and TRP), EV Connect (Venture Capital) and SemaConnect.

Seeing duplicates in the investor list also lends credence to the theory of this space being ripe for consolidation.

As usual, only food for thought.  Hope you all have a good week!