Batteries Takeover

by Overheard Wall Street
  • Intro
  • Batteries
  • Universe
  • Blink Charging
  • Conclusion/Recommendation

Intro

Every company is announcing plans for net zero or an entire EV fleet by 2030.

And most of us are worried about the 300+ mile range or that instead of filling it with gas; we need to fill it with electricity… the thing flowing through our homes and available throughout the country.

Outside of our concerns, the energy transition is at the forefront of many earnings calls. Companies are making plans or executing projects on electrifying operations over the next decade.

With the rise in this need for electrification, the logical question follows: how will they execute this, and who is set to benefit the most from this transition plan?

Well, think about it for a minute – what holds an electrical charge and can power our EV cars?

Batteries.

And batteries require charging.

These two areas are still very early in development, even though they have come a long way in the energy transition.

Let’s dig into some businesses developing batteries and helping improve the battery charging technologies available to consumers!

Batteries

Today, two basic batteries are used in cars: lead-acid and lithium-ion.

Lead acid is the battery that sits in your combustible engine car – its power kicks the car into gear and powers your automatic windows and other functions in your vehicle.

This battery requires you to carry jumper cables around with you everywhere. You know, just in case you leave your lights on while running into Walmart and come out to find your car is dead and needs a jump…

Lithium-ion batteries are used to power phones, hybrids, and EVs.

Lithium-ion batteries have a greater density than lead-acid batteries. That means they can hold a greater charge and provide energy output for much longer than lead-acid batteries.

Demand for these lithium-ion batteries has exploded as EVs have entered the scene, and the world has turned to focus more on electrifying… everything.

EVs are more common to see on the road today than even five years ago but think about how the world will look by 2030.

Demand for lithium-ion batteries is already high (comparatively), and it’s only going straight up from here…

Understanding Battery Charging

There are three levels of charging: Levels 1, 2, and 3.

Level 1 represents 120-volt charging using ubiquitous household outlets. Level 1, known as trickle charging, provides an EV or plug-in hybrid electric vehicle with 3-5 miles of range per hour.

Depending on the vehicle's efficiency, these chargers require about 30 hours to replenish 150 miles of range.

If the car isn’t efficient, you can charge it completely, and it will go a shorter distance than a more efficient car.

Most EV cars come with Level 1 charging capability – but mainly as a backup if all else fails.

Level 2 charging is the fastest means of charging at home.

It operates at 240 volts, the same voltage many household appliances use, ranging from 12 to 80 amps.

Level 2 provides anywhere from 9-50 miles of range per hour of charging, depending on the car’s efficiency.

Level 3 charging, also called DC fast charging, is the gold standard in EV charging.

It’s not available at home yet, only at charging stations.

A quick dive deeper into charging:

Level 1 and 2 chargers must rely on a process called rectification, which converts from alternating current (AC) to DC before charging the battery.

Level 3 chargers start with higher AC voltage than levels 1 and 2. DC fast chargers rectify it to high-voltage DC outside the car using dedicated equipment separate from the charging point hook-up and then feed that DC voltage directly to the car’s battery.

This means that Level 3 charging can use higher current charging capabilities and boost batteries back to life much more quickly.

Looking at Tesla specifically, a level 3 charging station can generate up to 170 miles of range in just 30 minutes.

Universe

Fleet electrification is the significant demand driver for lithium-ion batteries and the buildout of the charging infrastructure.

Medium and heavy-duty class vehicles are expected to electrify faster than passenger vehicles owing to a much lower per-mile cost, or TCO (Total Cost of Ownership). These favorable economics motivate the aggressive electrification plans at Amazon, FedEx, and UPS.

And when big companies like these are electrifying their fleets, companies are springing up quickly to provide solutions at every step in that value chain.

With that growth comes the need to support charging infrastructure. Tesla isn’t the only one with charging stations.

Run an experiment real quick:

Pull up google and search “charging station near me.”

Count the number of Tesla charging stations vs. others.

Some of you may be surprised by the number of competitors in the battery charging space.

This is an area worth digging into a little deeper. Batteries are going to be built, and fleets are going to be electrified… but in the end, they are all going to need charging infrastructure.

Blink Charging operates more than 51,000 charging stations across 13 countries. It is one of the leaders in the charging infrastructure buildout.

ChargePoint operates over 200,000 charging stations in just three countries and is North America's frontrunner for level 2 charging.

Nio, a Hong Kong-based EV producer, offers a unique strategy in the EV space: they have created a battery swapping program where drivers can pull up to a station and have their battery swapped out in under 5 minutes.

Nio charges the batteries so that consumers don’t ever have to worry about “charging”; they swap out batteries when they need a charge.

The world of charging infrastructure is growing immensely, with many different players hitting the scene, but let’s dive into Blink today.

Blink Charging

Blink Charging is both a software and hardware business.

They operate a proprietary Blink Network to manage, service and use all their deployed charging stations.

They also create and sell charging stations for residential and commercial locations.

What is unique about the offering is that the Blink Network is a subscription-based revenue stream and operating system that allows property owners and managers to manage the Blink charging stations on the premises.

Blink runs four distinct lines of business:
  • Blink-owned Turnkey – Blink covers the charging equipment and installation cost and retains nearly all the revenues from EV charging.
  • Blink-owned Hybrid – Blink covers the cost of the charging equipment, but the property manager pays for the installation of the equipment. Blink then shares a portion of the EV charging revenues with the property owner.
  • Host-owned – the property manager covers the charging equipment and installation costs. Blink provides site recommendations, access to the Blink Network, payment processing, and an optional maintenance plan. In this model, the property owner retains all the EV charging revenue.
  • Blink-as-a-Service – Blink owns and operates the charging stations while the property manager covers the installation costs. The property manager pays a fixed monthly fee to Blink for access and maintenance but maintains all the EV charging revenue.

The revenue split between these business models is partially clear from their financial statements, but 74% of revenue is derived from equipment sales and another 14% from Blink Network fees. The remaining ~12% comes from warranty and grant revenue, a ride-sharing service that is a separate, much smaller business line, and Low Carbon Fuel Revenues.

Bulls
  • Blink has focused their efforts on Level 2 charging that can be accessed and utilized by all EVs on the road today instead of working in a proprietary market subset.
    • Unlike Tesla, which has proprietary charging cables and stations for Tesla only, Blink charging can charge almost all EV cars on the road today.
    • And their Level 2 charging equipment offers a variety of solutions to fit any location, like workplaces, multifamily residential, retail and mixed-used locations, parking garages, schools, hospitals, and airports.
      • These locations are ideal for level 2 charging, which can take 2-8 hours to recharge a battery fully.
    • With the charging network expected to reach an annual revenue of $214 billion by 2030, players like Blink, who offer broadly accessible charging services, should be in a solid position to take significant market share.
  • Blink has long-term contracts in place with major property owners and managers. And while their equipment sales are lower margin, these long-term service contracts provide a great source of high-margin revenue potential for Blink.
    • The more Blink builds and grows its charging service revenue, the faster it will achieve profitability.
  • While Blink is currently burning through much cash to achieve profitability, it is maintaining a lean debt structure – holding no LT debt on its books.

Bears
  • In Q2 of 2022, Blink brought in $11M in revenue. This is much faster than in prior years. Even in 2021, its total annual income was $20M. But when we look closer, compensation appears to be a massive expense dragging them down.
    • In 2021, the CEO was paid:
      • $1M in annual salary
      • $1.28M in annual bonus
      • $768K in stock awards
      • $14.4M in Option Awards
        • These awards were granted as part of a particular bonus program for the CEO, who is allowed to purchase 475K shares at an average exercise price of $37/share. These shares only vest if Blink trades above $90/share for 20 consecutive trading days.
    • The key here is that management is incentivized on short-term company performance, not long-term. This is often a red flag as it can cause management teams to focus more on quarterly performance and less on achieving tangible strategic goals that will build the company.
    • In the most recent financial statements, compensation broadly accounted for 94% of Q2 sales and 112% of sales in the first half of 2022.
      • Management states that the high cost of compensation is due in part to CEO pay and the large annual bonus and in part to continued investment as a result of “anticipated future growth.” 
  • Performance has been horrendous this year, as Blink has underperformed the broader market by a significant margin. Blink has been dragged down with the broader tech selloff in the market – not to say that they should not have been, but they are steadily growing and improving.

Key Metrics as of 10.28.22
  • Current Price: $14.44
  • Cash: $89M
  • LT Debt: $1.8M
  • NTM:
    • Revenue: $54.4M
    • EBITDA: ($63.3M)

Conclusion/Recommendation

Blink has much potential ahead of it – but for now, it still appears to be a ship in need of a strong wind to help it out of still waters.

While Blink may be a solid play for those looking to access early-stage EV charging infrastructure, waiting this one out might be the better option.

Unfortunately, all EV-charging public companies in this space are in a similar position – growing revenue quickly. Still, high expenses are following closely behind, and the pathway to profitability seems narrow.

One alternative would be Tesla, an already established automaker building both EVs and an entire EV charging proprietary network. 

Tesla has a leg up on competitors, too: they manufacture level 3 superchargers. We mentioned these earlier but they can fully charge a car in 20-50 minutes.

While not a pure battery play, Tesla does have the incredible first-mover advantage of mass developing EVs and a broad charging network.

We think Blink may have the best upside potential of the EV charging companies, so we will keep this one in our back pocket – or maybe throw some fun money at it to stay further invested.

But Blink does not check all the boxes compared to our preferred company – profitable, scalable, uniquely positioned for long-term growth, and manager alignment.

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