It’s been a little over a year since Whitney Tilson’s Empire Financial entered the world of big-time newsletter promotions with a teaser pitch for “TaaS” — and as that anniversary of a really successful teaser pitch comes near, they’re updating it today with some new stocks… and a tease for a different newsletter.
The new pitch went live as one of those interminable infommercials on March 25th, so the “save the date” ads were everywhere in the days leading up to that, but now we’ve got the recorded presentation to sift through and, thankfully, a handy-dandy transcript we can scour for clues.
The ad this time around is for Enrique Abeyta’s Empire Elite Growth newsletter ($2,500 for the first year, no refunds), though his partner Whitney Tilson is also part of the presentation and follows up on some of his TaaS ideas from last year.
And the basic pitch is the same — electric vehicles and autonomous vehicles will move us faster down the road to “Transportation as a Service” (that’s the TaaS — others have made similar pitches calling it Mobility as a Service (MaaS)). And Tilson and Abeyta think this is coming faster than you expect… here’s a little bit from Abeyta:
“Everything seems to happen slowly, until you wake up one day and realize that the world has completely changed. It’s actually a psychological tendency we have as humans.
“We don’t notice the little changes… the little blips on our radar that should clue us in to the changing winds. We’ll subconsciously ignore them because they just aren’t that important to us in our day to day. And we’ll ignore it again and again until suddenly those little blips are the new status quo.
“It’s just like how it seemed smartphones were a novelty for a couple of years when they first came out…
“The first ever iPhone popped up in 2007…
“And yet, by 2010, 20% of Americans owned a smartphone. And only four years later, it was a majority.
“I believe the exact same thing we saw with smartphones is about to happen for electric and self-driving vehicles….
“You’re going to be seeing a lot more electric cars on the road in the coming months and years.”
And here’s the actual lead-in to the promo:
“1 Group of “TaaS” Stocks Gained an Average of 447% in 2020
“Why a $2.5 Trillion Transition Could Send a Second Wave of TaaS Stocks Soaring…
“Today, we’re giving our company’s exclusive update to our most popular investment idea to date, the “TaaS” boom.”
I can confirm that “popular” part, at least — Tilson’s first TaaS pitch, which has been one of his highest-profile promos since he launched Empire Financial in partnership with the Stansberry folks, has been one of our most-requested stories of the past year. That was much more of an entry-level pitch, charging $49 for Tilson’s Empire Stock Investor, and this sales promo for Abeyta’s Empire Elite Growth, which costs 50X as much, is, sadly, a little lighter on the clues about the teased stocks.
Still, what can the Thinkolator find for us? Let’s go through and see what hints are dropped.
Here’s a more general explanation from Tilson from the presentation:
“I wouldn’t say our team and I discovered TaaS per se, but we did help popularize the idea that transportation is being completely reimagined in the marketplace…
“And it’s created one of the biggest investment opportunities in decades….
“TaaS stands for “Transportation as a Service.”
“Put simply, it’s the idea that EVs and autonomous vehicles, or AVs, will transform America as we know it.
“Sooner than almost anyone realizes, you’ll be able to hail an electric, self-driving vehicle via an app on your phone, just like you hail Lyft and Uber rides today.Are you getting our free Daily Update
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“TaaS will essentially mean a fleet of electric, autonomous cars that some experts say could go 500+ miles without charging… and can go 100,000+ miles a year, with very little maintenance.
“Just imagine the ripple effect this would have across society…
“Everything from how we travel, work, shop, and spend our free time could be totally revolutionized with this technology.
“And most importantly, I believe this future is coming sooner than almost anyone expects.”
Abeyta is much more of a trader and growth stock investor, and helms some trading-focused newsletters as well as Empire’s SPAC-focused newsletter, and he also teased some of the LiDAR SPAC names over the past year that got so hot for a while (and have in some cases cooled off quite a bit since), so he’s not new to this sector.
So what stocks are they touting? Here’s a little intro that suggests Tilson probably still likes some of the same players…
“Well, the overall tech market, including many TaaS stocks, did have an ugly selloff over the past month…
“If this was driven by bad news – perhaps lower-then-expected demand for EVs or regulatory setbacks – I’d be concerned.
“But it had nothing to do with the fundamentals. Rather, stocks sold off mainly because interest rates rose.
“Plus, there was probably some froth in the TaaS sector, where the stocks of lousy, over-hyped companies had soared alongside those of the real companies that will be the long-term winners.
“I think it’s healthy that many of these bad stocks got hammered….
“If we’re right – and I’m confident we are – the selloff simply means that you can get in right now at even better prices.”
And Tilson does confirm that although the electric vehicle surge caught him by surprise (he’s long been a Tesla skeptic, for example), those weren’t the stocks in the TaaS portfolio, his TaaS stocks did well and he still likes them, but they didn’t go up 500% or more like some of the EV stories…
“Many of them have already seen chances to gain 102% and 100% from this story…
“And we’re still extremely bullish on those original TaaS recommendations. What we’re doing here is adding to our research.
“We hope to give our readers even more chances to profit from TaaS going forward…”
The first pitch for TaaS focused much more on the autonomous part — the idea that autonomous vehicles would soon be available to provide much more cost-effective transportation, not primarily because they were electric but because they would be ubiquitous and dramatically more efficient, getting rid of the need to own a car for daily transportation.
This one is much more about electrification of the global auto fleet, following a year when Tesla became the largest car company (by market cap, at least — they’re not even in the top ten in terms of numbers of cars built), and when most of the big global auto brands are pushing to build and sell more electric cars, including commitments to go “all electric” or at least “half electric” over the next 10-15 years, coinciding with some governments pushing an “all electric by 2030 (or 2035)” goal (particularly in Europe, China and California).
Tilson shares one stock that he didn’t release publicly before, as well (though we did “reveal” it for you in our coverage of the first TaaS pitch):
“And that stock is NVIDIA. The ticker is N-V-D-A.
“NVIDIA is of course the computer chip maker that has already had an incredible run the past few years…
“But that’s because it has positioned itself to be a major player in so many breakout technologies.
“It’s not an exaggeration to say NVIDIA is computing the future.
“While NVIDIA might be best-known for creating graphics cards for video games, its chips will actually help driverless vehicles “play the game” of navigating real life roads….
“NVIDIA is a $300 billion company. It’s a lower risk bet than what Enrique is recommending, but it has less upside, too.
“We’re probably not going to see NVIDIA’s stock turn into a 10-bagger over the next few years. But I do like the stock up to $700 a share, from its current level a bit above $500.”
So that’s a nice confirmation (if you’re asking, I can justify buying NVDA up to about $520 — though $450 would make me more certain), though we already revealed that Tilson’s first TaaS picks included Waymo parent Alphabet (GOOG), Aptiv (APTV) and NVIDIA (NVDA) (plus a couple other guesses, maybe including NXP Semiconductor (NXPI))… so it’s nice to hear that he still likes those, but what is it that they’re teasing as new ideas today? Here’s what Tilson says….
“Enrique’s already mentioned that the two stocks he’s recommending in this space are both SPACs; meaning you’re not paying any kind of premium. They haven’t run up at all because of the way the SPACs are structured. So we’re trying to recognize that there’s risk out there in the sector and saying, “Okay. Maybe buy a blue chip like an Apple or an Alphabet or an NVIDIA.” But those have big market capitalizations,” or whatever. And then, we’re looking for something, a more Conservative way to play. Something that hasn’t yet gotten super big.”
I don’t know why you’d say that you “aren’t paying any kind of premium” for SPACs, some of them trade at gigantically wacky valuations, but we’ll let that slide for the moment… what, then are those two stocks from Enrique Abeyta? Do we get some actual clues?
This is what Abeyta says:
“In this report, you’ll find my favorite EV stock, my favorite EV charging stock, and the one autonomous vehicle stock on my watchlist that I’m champing at the bit to add to the portfolio.”
Other than “both of the recommendations are SPACs” and that they have announced but not completed merger deals, and have four-letter ticker symbols (which is a clue, some SPACs have three), we don’t get a lot of info… here’s what he does say:
“I can’t tell you too much… But I can say that one of these companies already has ink drying on a couple huge deals with two of today’s biggest automakers.
“Another deal has 10,000 vehicles pre-ordered, and claims these vehicles are ‘autonomous ready.’ Which means it’ll be able to upgrade existing vehicles at some point for autonomous driving.
“That flexibility is great, because it could allow them to shop around for the right technology before they spend a ton of money on something that’s not going to pan out.
“So again, to our point about not buying EV companies on hype alone…
“This company is already projecting revenue. It already has massive demand from a major customer. It has backing from industry leaders. And its product is priced competitively with its fossil-fuel counterparts… bringing us closer to that tipping point Whitney mentioned earlier.”
The best match here for that “favorite EV stock,” sez the Thinkolator, is the British commercial electric vehicle company Arrival, sometimes referred to as “Britain’s Rivian,” which is getting a US listing (at a valuation of $5.4 billion, assuming the $10 SPAC price) by merging with the SPAC CIIG, announced back in November.
But I shouldn’t say “getting,” that deal was actually completed last week, I think it was on the same day as Tilson and Abeyta’s presentation — so Arrival (ARVL) started trading on Thursday and has now come down off its highs a bit, to about $19 (for a market cap of about $10 billion — it got as high as $33, for a market cap of about $18 billion, during the initial enthusiasm after the announcement of the deal late last year).
Arrival does have a 10,000 van order from UPS, which is also an investor in the company, as well as plans for buses and trials with other delivery fleet operators, including the Royal Mail in the UK. And those are, as the tease says, deemed “autonomous ready,” though they aren’t really autonomous street vehicles yet — the plan is to have them first be “depot autonomous,” meaning they can drive around to charging stations and cleaning areas within the delivery depot to get ready, but will have a driver when they leave the depot. At least for now, before the upgrade to “autonomous” is ready. And yes, they make a point of saying that their van is “priced competitively with fossil-fuel equivalents,” the company’s marketing language is very similar to Abeyta’s clues.
ARVL is an interesting company, trying to really shake up the industry pretty meaningfully both with its van designs and with its manufacturing and distribution — they intend to build these Arrival vans in “microfactories” that can be plunked down in any industrial park to build these “cellular designs” that are specialized for local needs. That’s likely to be a big challenge, since massive, centralized factories are generally much more efficient, and I have no idea where they’re manufacturing the parts, components and assemblies that will go into building the vans (I’m sure they won’t be building giant battery arrays in each microfactory, for example). It makes me squirm a little bit when they say they’ve “found a way to break the rule of economies of scale,” since even with a modular and high-tech factory plan that sounds a little bit like magical thinking… but I hope they’re right. Their prototypes for UPS and others look really cool, and certainly fleets of electric delivery vans make a huge amount of sense for urban areas (full autonomy would add some value, too, but but not all that much — you still need someone to pick up the packages and drop them on the doorstep).
There are plenty of competitors in the “delivery fleet” category, since that’s one of the more appealing areas for EVs to get quickly to commercial scale — get a few big customers, who have clear requirements and operate fleets with relatively low daily mileage, and build from there. That’s what folks tried to do with natural gas vehicles as well, and indeed tried to do a decade ago with the first wave of electric delivery trucks, but it does seem that it’s likely to work better this time around… if only because the economics of electric vehicles, even without subsidies, are becoming more compelling (and, of course, because governments are pushing that with restrictions on non-electric fleets, particularly in some heavily polluted cities).
Could any of the other players be a similar match? The only one that’s very close, in my eyes, is Lightning eMotors, which is also merging with a SPAC, GigCapital3 (GIK) and has a little head start over Arrival in getting some vehicles on the road (120 as of the end of last year), and has 1,500 vehicles on order… but 1,500 isn’t 10,000 (and three letters isn’t four letters).
Lightning also claims a dominant market share in heavier commercial electric vehicles in the US, selling more than half of the vehicles shipped in 2020 — though, we should note, that’s a relative “first mover” advantage but not really a sign of a dominant market leader just yet, Lightning shipped just 78 trucks in 2020. Most of these large orders for all of the hopefuls in the commercial electric vehicle market have not yet really hit. Lightning expects $63 million in revenue this year, 2/3 of it from fulfilling existing purchase orders for commercial vehicles, and they have a bunch of fleet partners for both their electric and fuel cell truck platforms… and they expect to be breaking even on an EBITDA basis by 2022 and generating positive free cash flow by 2025, largely because of the big push starting in 2023 in California that will make diesel and gasoline trucks uncompetitive (that’s a gradual implementation through 2035, but should have a big impact on new truck purchases).
And there are plenty of others in that “electric truck” segment, including Lion Electric (merging with Northern Genesis Acquisition (NGA)… again a three-letter ticker, not four, so it doesn’t technically meet the clues, and their largest order so far is 100 trucks from Pride (though they do have an agreement from Amazon to order 2,500 heavier-duty delivery trucks by 2025).
Or Canoo (GOEV), which merged with a SPAC last year and has a really funky-looking electric delivery van, smaller than Arrival’s, that might be available for preorder later this year…. or Electric Last Mile (ELMS), which is merging with the SPAC Forum Merger III (FIII) and says it has 45,000 “non-binding pre-orders” for its small urban delivery van.
Rivian is often mentioned as well, and they do have a big Amazon order for 100,000 vehicles, though they’re going with the traditional IPO (the were initially rumored to be going public early this year, though their lawsuit with Tesla or other concerns might be pushing that back to the Fall, and they reportedly don’t really need the money yet).
And the list goes on… Lordstown Motors (RIDE) is probably the one that has gotten the most press recently, thanks to the short report from Hindenburg Research that called “fraud” on its claim of 100,000 pre-orders for their electric pickup truck. Workhorse (WKHS) is also focused on delivery fleets, though they throw in integration with last-mile drone delivery and have been public for a long time… and they weren’t a SPAC merger company (and lately, the story for Workhorse has been their failure to get a deal for the next-generation vehicle for the US Postal Service).
And I’m probably forgetting somebody… but I still think our best match here is Arrival. And it is a much cleaner story, at least so far, than most of the electric truck story stocks… though that could, of course, change pretty dramatically as investors get their teeth into the details.
So how do Arrival’s financials look? The insiders at Arrival, including those major investors like UPS, are maintaining control in the SPAC deal, as is true of most SPACs, and the the headline number they throw around is $14.1 billion in 2024 revenue… which sounds pretty good for a company with a $10 billion market cap. But that’s a ways off, how about something a little more predictable than 2024?
They do say they have $1.2 billion in orders, though that’s primarily the big UPS order that they are careful to say can be cancelled or modified. They expect production for their first vehicle to begin in the fourth quarter this year, though that’s an electric bus and I don’t know if they have any actual orders for that one yet — they do say they have a “letter of intent” for bus orders with ember, which operates some electric bus routes in Scotland. The UPS vehicle is not expected to start production until the third quarter of 2022, and that’s by far their largest project at the moment, so it’s quite likely that they won’t have any revenue to speak of for more than a year. And to further those clues that Abeyta drops, they do also have a strategic joint venture with Hyundai (which technically could mean two auto companies, since they own Hyundai and Kia), so that might also help with vehicle development and component sourcing.
Arrival expects to be producing more than 60,000 vehicles by 2023, and 250,000 by 2024, which sounds extremely aggressive considering they’ve just opened a couple of their “microfactories” and haven’t really done anything at any kind of scale yet, but that’s part of the fun of SPACs — they can predict future greatness while making their deal, without as much pressure as traditional IPOs have (from the SEC, at least) to say realistic things about the risks that face those future prospects.
Based on what I’ve seen from fairly quick looks at a bunch of other electric truck companies (Canoo, Hyllion, Lordstown, Lion, ELMS, Nikola and Workhorse), the Arrival story does strike me as a little more compelling, partly because of that UPS order and the fact that UPS participated in designing the truck and invested in the company, but I would expect that there will be some ups and downs — it’s pretty hard to imagine that they’ll hit their production targets for 2023, so paying 2X the anticipated revenue in that year might sound OK, relative to a lot of other EV stocks, but it’s still a pretty risky investment in any real-world scenario. So I’ll confess that if I were forced to invest in one of those names today, ARVL would probably be my first pick… but I’m also pretty pleased that I’m not forced to buy today. You can see the Investor Presentation they filed for the deal here if you’d like to see how they sell themselves.
And remember, essentially every electric vehicle stock at this point is a pretty wild growth speculation — the big, established automakers and truck companies are all wildly larger and more capable than all of the EV companies. It seems crazy to say that a company like this with no actual revenues yet, and no proof that their vision of scaling up their production will work, is trading at a $10 billion valuation when Ford, with $127 billion in sales last year, is trading at $48 billion.
Yes, growth and “owning the future” are both really compelling strategies, and I agree that Arrival’s story and those of many of their competitors sound impressive… and sometimes it works, the world does change and huge new companies do emerge on the basis of strong stories and excited investors and capable founders… but not every time. We should keep in mind that these huge growth stories about a big shift in the world are usually highly speculative. Projected revenue, conjured up using a model of anticipated future sales and looking oh-so-compelling in a nice investor presentation, can disappear overnight. If Ford has a lousy year, the shares probably drop by 50% and take years to recover (as has happened before, Ford has been public for almost 70 years). If Arrival loses that UPS order for any reason, and can’t restructure the company based on some new partnerships before their SPAC cash runs out, it might cease to exist.
And how about that second stock he hints at? Remember, he teased two SPAC deals — one an EV maker, which I conclude is very likely Arrival, and one an EV Charging company…. here are the clues for that other one:
“… electric charging networks are one of the areas I’m personally most excited about for investors.
“Wall Street loves to try to find the story within the story – or what “picks and shovels” plays will profit the most from a big trend.
“These charging networks are probably one of the most impactful “picks and shovels” plays for electric vehicles.
“The idea is that with so many car makers competing, it’s hard to know which one will dominate the electric vehicle landscape.
“But choosing the companies that will service ALL electric vehicles around the country is a safer bet….
“I have my eye on another charging stock that I’m excited to share with our readers…
“One I believe could end up winning a lot of business in Europe, which is already farther along with its EV infrastructure.”
So who could that be? Well, we did take a look at all of the available EV Charging companies a few weeks back when David Fessler was teasing one of them, so let me just go through that list again (I’ve updated the rough estimates of valuation — essentiall