Friday, July 17, 2015

Charge Up for Investors

Earlier this week, the quieter half of Tesla Motors (TSLA:  Nasdaq) founding team and the company’s chief technology officer, JB Straubel gave a speech at a solar energy conference in San Francisco.  He is largely responsible for Tesla’s innovative battery technology, so it should be no surprise that he thinks that eventually all vehicles will be powered by batteries.  As profound a this view might seem, let’s remember that if hammers could see, the world would look like a nail.
Nonetheless, I thought it worthwhile to take Straubel at this word.  This is a man who is building a factor big enough to produce a half million batteries per year to charge Tesla all-electric car.  Yet, batteries only provide a solution to store energy for on-demand use in  the vehicle.  Once that energy has been depleted, the battery and the car are stranded alongside the road.

Is there an investment opportunity in electric car charging?

According to the Electric Driver Transportation Association (EDTA), at the beginning of 2015, there were approximately 286,000 electric cars on the road.  It does not seem like many cars.  To bring the total into perspective, it is important to know that 118,773 electric cars were sold in 2014 alone, and that was 35% more than the year before.  Thus the private electric car base in the U.S. remains small, but it is growing at a fairly rapid pace.

Tesla’s cars represent about 20% of the electric cars on the road in the U.S., based on a comparison of Tesla’s public filings and the EDTA car census.  Tesla provides its customers with a free charging at its SuperCharger stations and brags about the freedom Model S drivers have to roam the entire continental U.S. for free.  It is not so simple for the rest of the drivers sitting behind the steering wheels of a Nissan Leaf (at least 150,000 on the road) or a Chevrolet Volt (75,000) or Toyota Prius PHEV (61,000), among others.  There are home charging units available and likely most electric car owners plot out a charging strategy for home, work and local shopping situations.  The trip to the beach or visit to grandma might still be problematic.  

There are several companies already trying to speed electric car drivers to their destination.  I take a look at three of them here.

Privately-held ChargePoint operates the largest network of electric vehicle charging stations, with sites in the U.S., Europe and Australia.  The company claims over 22,300 charging locations in operation.  Building this network has been a culmination of a long list of partnerships with parking facility owners, employers and municipalities as well as alliances with electric car manufacturers.  This large network has required capital.  ChargePoint last came to the capital market in May 2014, when it raised $22.6 million in new funding.  The deal brought the company’s total capital raised to $110 million, which appears to have come from a mix venture capital firms like Kleiner Perkins Caufield and Rho Ventures as well as from strategic investors such as BMW.

Car Charging Group (CCGI:  OTC) has gobbled up a couple of other companies with car charging technologies and networks  -  Blink and Ecototality.  The acquisitions have given Car Charging the beginnings of a nationwide network.  While the company makes much of its cooperative agreements with major retailers and employers such as IKEA, Walgreens, Walmart and the Mayo Clinic, it has not disclosed an updated number of charging stations available to the public.  A recent partnership with Honeywell International (HON:  NYSE) is making Blink EV charging available at Honeywell offices in Phoenix, Arizona.

Another public company Envision Solar International, Inc. (EVSI:  OTC/PK) is gaining visibility.  While not aiming for the same nationwide web of charging stations across the country, the company offers a unique and valuable technology to owners of electric vehicles.  Their EV ARC charging unit is solar powered, using a battery pack to enable charging services available around the clock.  Envision has been taking orders since the beginning of 2011, focusing much of its marketing effort on the sunbelt states of Arizona and California.  Nearly 80% of all electric cars in the U.S. are located in California where strict emission standards and rebates, drive electric vehicle economics.  The company recently won a contract with the state of California to supply its proprietary portable electric vehicle charging units for use by state government agencies and employees.  The portable units make possible EV charging in remote locations that are not grid connected. 

Traders reading about these three companies might be grumbling a bit at the lack of investment opportunity.  ChargePoint is a private company and off-limits to most investors.  The stocks of Car Charging Group and Envision Solar both are publicly registered and available for minority investors.  Unfortunately, both stocks trade for pennies per share.  Nonetheless, I believe these companies are worth watching carefully as electric vehicles become a larger component of personal transportation. 

First, I expect considerable consolidation in the EV charging industry.  There are numerous companies in the U.S., including SemaConnect amd PlugShare.  In Europe there is Full Charger International, Park & Charge and Elektromotive Group as well as Ecotricity in the U.K.  Mergers and acquisitions are likely to be an economical means to capture technology and market share.  Although Car Charging lost out with its bid on the assets of bankrupt Better Place, it had already proven its capacity to strike a bargain with the Ecototality and Blink deals.

Second, ChargePoint has been well received in the venture and private capital market.  At some time its investors will seek to reap returns, making a public offering more likely than not.  It is worthwhile following ChargePoint in case this is the path it is traveling.

Third, the pricing of Car Charging and Envision as penny stocks, are less intimidating if the stocks are regarded as options.  These two companies are not direct competitors at this point and offer interesting footholds in the market for car charging stations.  For a few pennies traders will have security linked to car charging technology and capacity that could fizzle…or flourish.  Management will be working toward the latter outcome, making the stock an option on management execution.

The next post focuses on a large, public company that has taken significant interest in electric car charging.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

 


 

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