What’s David Fessler’s Teased February 11 “Extreme” Electric Vehicle IPO?

ID'ing the "No. 1 EV Stock for 2021" from the inaugural teaser pitch for the Oxford Club's Extreme Disruptions Trader

By Travis Johnson, Stock Gumshoe, February 3, 2021

Another electric vehicle teaser ad for our consideration today… Extreme Disruptions Trader ($1.495/yr “charter price”, no refunds) from David Fessler at the Oxford Club seems to be a new letter getting launched this month and he says in the ad that it will follow strategies for buying past early disruptors like Roku (ROKU), DocuSign (DOCU), Innovative Industrial Properties (IIPR) or Beyond Meat (BYND), and he says he’ll recommend a new “extreme disruption” every week, targeting small companies and “low-priced shares” and also using options to leverage returns.

He sounds very bullish in general about electric vehicles, and all you have to do is look at Tesla’s (TSLA) chart to know that he’s not alone… here’s a little taste of the ad:

“Even if you’re just discovering EV stocks now, you haven’t missed the boat. Not by a long shot.

“That’s because a $44.5 BILLION government windfall is about to kick this industry into overdrive.

“And my research shows that ONE tiny company could see its business expand as much as 28-FOLD as a result.

“This company’s not on the list I just showed you. In fact, it’s still a private company.”

Ah, so I bet you know where this is going. I’ll give you a hint, it rhymes with “Thwack” … more from the pitch:

“But don’t let that stop you.

“Thanks to what The New York Times calls ‘a back door to Wall Street,’ you can buy shares TODAY.

“That’s right. Through a unique investment vehicle, you can get in on the hottest IPO of the decade BEFORE it goes public.

“Even better, you don’t have to be a venture capitalist or an accredited investor with loads of capital.

“In a moment, I’ll show you how anyone with a basic trading account can buy shares ahead of the big IPO I’m expecting on February 11.”

So what is it that he’s calling his “No. 1 EV Stock for 2021?”

The big driver in this ad is that he says the expected surge in federal infrastructure spending will pour tons of money into this business… and that a lot of it will go to the recharging networks that electric cars needs if they’re going to become a larger part of the national transportation picture:

“… there’s a $44.5 billion infrastructure plan underway in Washington that could make EVs an even hotter market.

“It contains a provision that could solve the BIGGEST problem facing the EV market today: the scarcity of EV charging stations.”

Will it work out? Who knows, I’ve been completely wrong about Tesla (TSLA) for years and Fessler has apparently been right, so I won’t stick my neck out and tell you not to buy the stock, whatever we find it to be — just be aware that as with all of these speculative EV-related stocks, you’re buying the future, not the present, and the future can change quick. A bunch of these companies will fail… I just don’t know which ones.

More from the ad…

“…this plan… calls for the building of 500,000 EV charging stations across America.

“Once that happens, the ratio of charging stations to gas stations will COMPLETELY flip.

“And EV charging stations will outnumber gas stations by nearly 5-to-1.

“This could be HUGE for the stock in my new report, ‘The EV IPO of the Decade.'”

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There are only something like 25-30,000 electric vehicle charging stations at this point (many of them have multiple chargers, so there are close to 100,000 outlets, if that’s what the measure is), and there are something like 115,000 gas stations in the US.

Of course, there are a lot of variables in this 3D chess game… filling your car with gasoline takes about two or three minutes per 300 miles driven, versus at least half an hour to charge an EV for that much range… and a lot of places have one or two chargers, while the typical gas station has anywhere from four to 40 pumps, but it’s also true that most EV chargers and most gas pumps are vacant most of the time… so figuring out the capacity that’s needed to create “enough” for a national electrified vehicle future is enough to give a quantum physicist a headache.

But anyway, which stock is he picking?

Fesller calls this stock “The Charging King” — and I expect some of you are already guessing at the name — but can we confirm that this is the stock you think it is?

Here are our clues:

“In the U.S., it has 39% market share with 6,895 stations.

“Can you imagine what would happen to this company’s business if it built 39% of these proposed 500,000 charging stations?

“You don’t have to imagine; I’ve done the math. Its business would expand 28-fold!”

Not to give away the answer so early here, but that info is actually quite old — it’s from 2017. I don’t know if the market share has shifted meaningfully, but certainly those numbers have changed.

More?

“The Charging King counts a staggering 60% of Fortune 50 companies as customers.

“Check in at any Marriott, Sheraton, Ritz-Carlton, Hyatt or Best Western and you’ll likely see one of its chargers in the parking lot.”

And he sees big things coming when the federal government gets into the business of really pushing for more EV charging stations…

“In my opinion, The Charging King is the only candidate with the experience, market share and resources to handle this massive, 500,000-unit order. “

This company also sells at-home chargers, which is also a competitive market since most EV owners want to be able to recharge their car fully overnight, or using their solar panels…

“The Charging King has cornered the consumer market too….

“On Amazon’s list of bestselling home chargers, this company is No. 1!

“As Americans rush into Ford dealerships to lease the all-electric F-150, which home charger do you think most folks will buy?

“My money’s on The Charging King’s No. 1 bestseller.”

And a forecast for that part of the market…

“CleanTechnica – a leading EV research firm – projects that drivers will buy 4 million electric vehicles in 2021.

“If just 1 million of them buy this $649 charger…

“The Charging King will rake in $649 million in sales.”

And, of course, the specifics of this coming “IPO” …

“I expect The Charging King to go public on February 11….

“And anyone can buy backdoor shares ahead of the IPO with a basic investment account. You can learn how to do it as soon as this presentation is over.”

There are three fairly high-profile EV charging companies that have agreed to “go public” in the past few months, all of them by merging with a SPAC (Special Purpose Acquisition Corporation, the “blank check” companies everyone’s been salivating over for the past year or so) — there’s ChargePoint, which is merging with Switchback Energy Acquisition Corp (SBE), EVBox (merging with TPG Pace Beneficial Finance (TPGY)) and EVgo (merging with Climate Change Crisis Real Impact I Acquisition (CLII)), to say nothing of companies that have been public for at least a few minutes longer, like Blink Charging (BLNK) and Beam Global (BEEM)… so which one is David Fessler touting here?

Thinkolator sez it must be ChargePoint, which, yes does boast the #1 best seller on Amazon for Electric Vehicle Charging Stations in the $699 ChargePoint Home Flex Charger, though they’re best known for their larger national charging network.

And yes, ChargePoint is going public (or intends to, at least) through a merger with Switchback Energy Acquisition Corp (SBE), and, as Fessler noted, that deal is expected to close in February, with the key date being the February 11 vote of SBE shareholders. Once the deal is approved (and the share price tells you it’s virtually certain to be approved, unless we find out in the next week that ChargePoint’s CEO eats babies or something… and even that might not slow it down).

I haven’t even looked up the name of ChargePoint’s CEO, to be clear, and I’m sure he or she does not eat babies. Just making a point. Stand down, lawyers.

The challenge for investors today, of course, is that none of this is new — the deal to take ChargePoint public through the merger with the SBE SPAC was announced back in September (they made a presentation of the details if you want to see that), and, as is the case with so many “hot” SPACs in electric vehicles, LIDAR, batteries and other popular tech growth sectors, the SPAC price soared in anticipation of the deal getting done…. so buying SBE shares right now is like buying a business that was judged by SBE’s managers to be worth $10 (the amount of cash going into the deal, and the basis for the valuation of the merged company)… but you have to pay $40 for it (the current market price for the SPAC shares).

Part of that massive ramp-up in the share price is just enthusiasm in this bubbly market, part of it is that SPAC managers are not terribly incentivized to make a good deal for their shareholders because they get a huge slice of the combined company for free, but get nothing if they walk away from the deal. And part of it, I’m sure, is coming from the fact that investors believe this company and its products and charging network are going to be a fantastic growth story, and it’s worth paying almost anything to get on board… particularly if you dose that with a bit of “FOMO” (Fear Of Missing Out) following the wild surges that other EV-related stocks have seen in recent months.

What does the company look like after this deal closes in the next couple weeks? They’ll have $683 million in cash, roughly half of that from the initial SPAC financing from SBE and half from the sweetheart private fundraising (PIPE) deal done with their buddies to raise more capital at $10 a share (something similar happens with almost every SPAC, being a sponsor or a participant in these PIPEs is where the really consistent windfall returns are enjoyed).

The business does look quite appealing, selling the hardware and software for a charging network with vertical integration is a great model, they sell the charging stations to homeowners or business owners or municipalities, often carrying someone else’s branding, and they get paid up front for that hardware, but then they also tack on a software subscription to run the stations and a service contract/warranty, so the way they present it the total revenue for a charging station over seven years is almost exactly half hardware, half recurring cash flow. Which means that revenue surges when they sell the device, but it doesn’t then drop to zero in the following year — it’s like you sell a charger for $1, so get that lump of revenue, but then collect roughly 10-15 cents a year for the next six or seven years after that in software and service fees.

Revenue fell for ChargePoint and all of its competitors in 2020, thanks to COVID — they expect it to end the year at about $135 million, but the expectation is that it will grow reliably at at least 50% a year after that, a little more in their forecasts, as the annual sales of ChargePoint ports climbs from the current 30,000 or so to 200,000 in 2025 and double that in 2026. They’re currently forecasting $2 billion in revenue in 2026… and we should, of course, take that with a grain of salt. They say they’ll be roughly breaking even on an “Adjusted EBITDA” basis by 2024, with revenues and margins continuing to both improve substantially from that point — and with the growth of the business fully funded by the $600+ million invested in the company by this SPAC transaction.

Will that be how it works? Maybe. But I will say that right now, with the stock at $40, it better be how it works — and really, the future had better be better than that. The existing SBE SPAC investors are getting about 10% of the combined company, and there will be about 305 million shares outstanding (the ChargePoint founders and venture investors will still control 80%). At $10 a share, that’s a valuation of about $3 billion, and that’s the valuation at which the original SPAC investors bought and what the participants in the PIPE will be buying, and it’s the basis for the numbers they put into their investor presentations… but now, with investors having bid the SPAC shares up to $40, the market is saying that ChargePoint is worth $12 billion.

The company itself posts a “discounted future enterprise value” estimate in its investor presentation, and gives what they think is a reasonable range of 4-9X revenue in 2026 as a future valuation, which would give them a market cap at that time of betwen $8 billion and $18 billion. If you discount that for the lower value of future money, though (a dollar today is worth more than a promised dollar six years from now), the value drops considerably — the example they give is a 15% discount rate, which is an admirably high rate for them to use (even junky mining companies sometimes use 5%), and that would give them a maximum discounted value today of $9 billion. Which means we’re about 35% above that maximum right now. I’m sure they’re pinching themselves a little bit, too, seeing the stock valued at “daydream about 2026 plus 35%,” but who knows, maybe the business will be dramatically better than they expect.

According to their own forecasts, we’re valuing the company today, at $40 a share, at 60X next year’s expected revenue — which is a discount to Tesla, I guess, but not really to any other established and revenue-generating company in the automotive space, so clearly the bet here is that the growth will be powerful for a very long time. That’s also a valuation of 6X the revenue they expect to have in 2026… or about about 35X the Adjusted EBITDA they hope to be reporting in 2026.

That sounds expensive, of course, and it is — those are “cloud software” numbers, not “gas station” numbers. Of course, I would have said the same about Tesla a couple years ago, that it was being valued like an e-commerce company instead of like a car company, and it did work out for Tesla just fine to this point. It’s not impossible for that kind of valuation to work out for investors, maybe ChargePoint will grow even faster than the 50-75% annual revenue growth they anticipate, and maybe electric vehicles will become an even more lustworthy sector for investors in the next couple years and someone will eagerly put a $40 billion or $100 billion valuation on the company… parabolic growth cures a lot of valuation ills… but paying this kind of price for future growth really cuts into the probability that you’ll end up with a successful investment. Anything is possible, of course, and speculation is a dreamer’s game — it’s fun, most of us need or want to do some pretty wild growth speculation with at least a little bit of our portfolios, but know what you’re getting into.

If I were to consider investing in ChargePoint, I’d first want to look at all of the other major EV charging companies, compare their business models and how they might differ, and their likely revenue growth prospects, and decide which management team seems most likely to succeed in building the dominant global recharging brand, or try to determine whether there’s a genuine disruptor in that bunch which is doing things differently.

Maybe nobody is obviously appealing, maybe I won’t care which charger I pull up to in 2025 in my Cybertruck, and maybe there will be a half-dozen or more large networks of charging station hardware makers and operators, not so different from gas stations today, and the equipment itself will be a commodity under pricing pressure as the charging equipment makers try to sign people up for service and software subscriptions… or maybe it will all be subsidized by the carmakers or the station networks who try to make their money selling Cokes and Slim Jims. I have no idea how it will evolve.

According to the forecasts from these companies or their analysts, this is how the other EV charging stocks I’ve looked at appear to me today:

Beam Global (BEEM) — really tiny, a rebranded solar company with a $500 million market cap, sells solar powered networked chargers (and other stuff) and forecasted to have wild revenue growth well over 100% for next couple years, trades at 12X forecasted 2022 revenue, with profitability also forecast for 2022. Investor presentation here.

Blink Charging (BLNK) — $2 billion valuation, trades at 100X estimated 2022 revenues. Analysts expect revenue growth of 50%+ per year. Investor presentation here.

ChargePoint (SBE, soon CHPT, SPAC proposal presentation here) — $12 billion valuation, trades at 35X estimated 2022 revenues, projects EBITDA break-even in 2024, Forecasting revenue growth averaging 60%+ per year.

EVgo (CLII) (SPAC proposal presentation here — $4.2 billion valuation, projects Adj. EBITA break even 2024, revenue growth forecast averaging ~100% into 2025, valued at 74X 2022 estimated revenues. Looks like they owns and brand their own network and are the only ones with a Tesla deal currently.

EVBox (TPGY, will be EVB, SPAC Proposal here) — $4 billion valuation, Adj. EBITDA breakeven in 2023, average revenue growth 70%+, arguably the current global market leader because of strong European presence, similar model to ChargePoint (half the revenue recurring over 6-8 years, half up-front for equipment).

Everyone is using similarly aggressive estimates about rapid increases in the number of electric vehicles and the number of charging stations needed in the US and Europe, which turns into really rapid revenue growth over a very long period of time. Going by those assessments, and after reading through the presentations, my initial inclination would be to start with EVBox and EVgo over ChargePoint. That’s a subjective assessment, and I surely have not become an expert on any of these companies in the few hours I spent perusing this morning, but I find EVgo’s business model and growth profile more appealing at first glance, and EVBox is as established in Europe as ChargePoint in the US, with a similar business model but faster turn to profitability, and their valuation seems a little less stretched.

And to buy any of these three SPAC mergers, of course, you have to be able to swallow what a sweet deal the SPAC sponsor and the selling company shareholders are generally getting, relative to what a regular IPO might price at in a less hype-y market. If you pick a management team that is more interested in getting out with a profit than in building an EV giant, you might end up with some truly dramatic insider selling over the next couple years.

In the end, for me, these are speculative but at least somewhat attractive emerging growth businesses in the abstract, and I could convince myself that they make some sense at the $10 pro-forma price if I’m willing to be patient to let these companies build out (we can’t buy them for $10 today, of course). I would at least be a little more confident in these three SPAC-funded charging network/equipment companies than I would be in the emerging hot story sensor/LiDAR stocks or battery stocks like Luminar (LAZR) or QuantumScape (QS) at what are similarly very high valuations (and, in most of the situations I’ve looked at, also investment cases predicated mostly on 2025-2026 expectations), but I must confess that I still have a tough time swallowing the implied valuations of any of them right now.

Your opinion might well differ, of course, and I’d be happy to hear it — or maybe I’ve made an error in my quick assessments or the numbers for those five names, so do feel free to pop your thoughts into the happy little comment box below. Thanks for reading!


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Steven Brener
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Steven Brener
February 7, 2021 11:10 am

Hi – I’m a little confused on what the play is here if the company is pre-IPO.

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godzilla
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godzilla
February 7, 2021 3:53 pm

I just watched a video of Jeff Brown pitching a ‘secret Tesla supplier’. One that is associated with the coming S.A.V. Shared Autonomous Vehicle Anybody know who the supplier is, might be providing cameras for behind the grill

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debrat24
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debrat24
February 9, 2021 11:07 pm
Reply to  godzilla

NOK

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