Two months ago today, I wrote an article outlining ECOtality's (ECTY) announcement that it may no longer be able to fulfill its EV Project obligations and its possible bankruptcy filing. The announcement followed the closing of an $8.2 million private placement of over 5 million shares of the company's common stock and, perhaps justifiably, a number of investors are taking part in a securities class action lawsuit against ECOtality. The suit represents an attempt to recoup some of the losses these investors incurred when the company's share price dropped almost 90% in the days following the initial announcement.
The same article looked at another EV industry company, Car Charging Group, Inc. (OTCPK:CCGI), to illustrate the fact that ECOtality's downfall was not representative of the EV industry as a whole, and to draw a comparison between the two companies that would in some sense outline where ECOtality went wrong.
In an announcement made at the end of last week, Car Charging revealed it won the bid purchase for ECOtality's Blink assets. This announcement somewhat justifies the thesis of the previous article, and in doing so Car Charging warrants further investigation.
What are the "Blink assets?"
The Blink assets that Car Charging has acquired comprise three main asset types. The first of these is the over 12,000 level two EV charging stations already installed in various locations across the US. This sort of charging station typically provides a full charge in between 4-5 hours, and can be used by any car that uses the industry-standard SAE J1772 connector. The second is the 110 Blink DC fast charger units, again spread out in various locations across the US. These are capable of providing a full charge in under 30 minutes. Finally, Car Charging has acquired the Blink Network. The Blink Network is the turnkey operating system that services the charging stations. It allows Blink users to locate, reserve and monitor availability of the charging stations.
Car Charging acquired these assets through a wholly owned subsidiary called Blink Acquisitions that, presumably, it set up to partake in the auction. Dow Jones reported the total cost to be a little over $3.3M.
What does this mean for Car Charging group?
Prior to its latest acquisition, Car Charging group acquired Beam Charging, EVPass, and 360Green, but was already the world's largest independent owner of public EV charging stations before the acquisitions. Its latest acquisition serves to strengthen its position as such. In a statement made related to the Blink announcement the company's CEO Michael Farkas said, "Since our inception, CarCharging's intent has been to grow our business organically and through acquisitions, with the purchase of ECOtality's Blink assets, we believe that it will solidify our position as the leader in the electric vehicle charging industry."
In terms of symbiosis, the charging stations should fit right into Car Charging's current business model, which revolves around the securing of long-term contracts with commercial outlets that have parking facilities. The details of the contracts associated with the Blink stations remains unclear, the presumption being that Car Charging will negotiate new contracts with the current location owners.
If you build it, they will come
One of the major stalling points the EV industry has experienced is the unwillingness of individuals to switch to an EV without the necessary infrastructure being available to eliminate the inconvenience of charging time and distance limitations. As the government contract ECOtality took advantage of shows, the industry realizes this and is attempting to tackle it. As mentioned in a previous article, the main reason for ECOtality's demise was the speed with which it built its network. The company had spent nearly all of the $100M worth of government grant by June this year, and the charging stations it had installed were simply not generating enough revenues to cover costs. Figures show that now that the infrastructure is finally in place EV sales are picking up and, with them, the chances of EV charging networks being able to generate enough revenues to sustain the companies that operate them. At the end of last month, Nissan reported sales of its Leaf model had surpassed 35,000 units sold in the US alone since launching in 2010. Global sales for the model are up nearly 300% since the company introduced the 2013 model. Further to this, Nissan reports that its Tennessee factory is preparing to produce 150,000 units each year. General Motors reported that sales were up 11% year to date during August for the plug-in Chevy Volt, its best-ever sales month.
While these figures are promising for EV industry participants, the bottom line is that Car Charging must be able to sustain its operations until its stations start to be used at close to capacity on a daily basis. In an interview earlier this year, Michael Farkas stated that current cost recuperation takes, on average, 12 months for each station installed. At capacity, this would be reduced to around four months.
With this in mind, what do the company's current financials look like? Revenues for the three months ended June 30, 2013 totaled $32,227, primarily generated through service fees related to installed EV Charging, compared to $3,410 in service fees for the three months ended June 30, 2012. The increase in revenues came about as a direct result of the 679 charging heads acquired from Beam, EV Pass and 350Green. To gain an idea of how the Blink acquisitions might affect these figures, a look at the ECOtality statement for the three months ended March 30 2013 shows the company generated $14,029 in service revenues from its stations.
The EV infrastructure war has been raging between a large number of companies for the past 4-5 years. There have been numerous casualties, a number of emerging leaders that have gone on to fall behind, and a whole host of unhappy investors. It now seems however, that the war could be coming to an end. Public perception of the EV industry is changing, and with this change, sales of EVs are increasing. Car Charging could soon emerge as the winner of the EV infrastructure war, and if it does, its stock could be due for a considerable upside correction.
With a company like Car Charging, the risk is obvious. Financial reports show that even with the recent acquisition activity the stations do not currently generate enough revenues to sustain the company's operations. Investors need only to look at ECOtality to see the consequences of rapid expansion into a market that does not financially validate growth. Car Charging will have to rely on financing, be it in the form of stock issue or grant, until the EV industry catches up. At the moment the company's stock is a risky pure-play that this catch up will happen sooner rather than later, and investors should realize this before committing capital.
Analysts now concede that at some point in the future, EVs will dominate the personal transport space. It is logical to assume that those companies that provide the necessary infrastructure to keep EVs on the road stand to benefit greatly from this pending dominance. If Car Charging group can avoid the pitfalls of its peers, something that so far it has managed to do, in 2-5 years it could become the leading provider of charging stations for an expected 5M vehicles.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.