Blink Charging: The Good, The Bad, And The Ugly

Summary

• Blink Charging seems just about as good as investors can get as a pure play on EV market growth and 2020 should be a banner year.
• Despite the second largest US network of chargers and a price premium, losses continue to mount at Blink and the business has serious margin difficulties.
• Blink needs to make substantial progress on a number of fronts to make a worthwhile investment, but will finally have the wind at their back in the 2020s.

Blink Charging (NASDAQ:BLNK) sells and operates electric vehicle (EV) charging infrastructure around the US. BLNK sells and installs home charging equipment, operates a network of company owned charging stations, and installs charging infrastructure and provides the maintenance for partners who run operations. Growth in EV sales will be spurred in 2020 by the release of new models by several of the world’s largest auto manufacturers - Audi, BMW, Chevy, Honda, Hyundai, Jaguar, Kia, Mini Cooper, Nissan, Volkswagen, and Ford will all launch new or updated electric vehicles this year. Naturally, investors seeking to capitalize on this market reaching an inflection point look to Blink as a way to get in on the action.

Over 15,000 Blink L2 chargers are available across the US that charge at L2 speeds, about 9.6 kilowatts or 30 miles per hour - comparable in charging speed to the primary competitor, ChargePoint (over 26,000 stations). Blink and ChargePoint both sell equipment and help service their respective networks, but only Blink actually owns and operates some of their own stations. Blink does offer a premium product in L2 chargers in a handful of locations that charge at double the speed (adding 60 miles per hour of charge) but I suspect others will catch up quickly and partly negate this advantage.

The Good

Blink has the second largest network of EV charging stations in the US, with well thought out locations in dense neighborhoods and in locations where users can park and run errands or dine-in. The business recently started expanding internationally into Israel, Greece, and South Korea. Blink also recently made a deal with Google to have their stations featured when Google Maps users search for EV charging infrastructure. As it stands Blink is also the purest play available to investors to leverage the growth in non-Tesla EVs that will be a major trend of the 2020s, projected to reach 25 percent of all new car sales by 2025. Blink has taken an average margin of about 70 percent over the past two years on revenue directly related to charging, which makes up about 60 percent of their business.

The Bad

Blink has never turned a profit and has an accumulated loss approaching $200 million. The loss narrowed in 2019, but Blink will still spend something like $10 million more than it generates in income for the full year. Much of the loss in recent years has been linked to ramping up staffing and capabilities for product sales, which grew revenue nearly 200 percent in Q1 2019 - but only after major investments over the previous six months, making margins for that segment deeply negative in Q4 2018 and Q1 2019. Product sales revenue for the first 9 months of 2019 grew 85 percent YoY, but cost of revenue grew a whopping 230 percent in the same time, and margins fell from 56 percent to just 22 percent. While revenues from this essential cash flow are headed in the right direction, income and efficiency certainly are not.

The Ugly

Blink products have massive quality control issues. For proof, investors need look no further than cost of warranties incurred by the business over the last two years, compared to gains on their sale - over $430,000 net loss in the past two years on just $150,000 in revenues for a loss approaching 300 percent. There can be no doubt that these issues are flowing through to the rest of the business - home equipment customers certainly are not helping Blink via word of mouth when their products require such frequent repair, and revenue is surely lost to broken public charging stations that would otherwise be in use. In Q3 2019, Blink spent 18 times what was taken in from warranty sales on warranty service. Until significant progress is made on reducing the expense from warranty service, quality control is probably the single biggest issue facing Blink in the years ahead.

Over the last several years Blink has engaged in the enraging practice of paying huge salaries and bonuses to executives as the company burns through paid-in capital at a stunning pace. In 2018, Blink distributed something like $4 million to employees through bonuses and non-cash compensation at the same time the business lost nearly $27 million. This has narrowed to $600,000 in extra compensation so far in 2019, but the optics of this practice are just abysmal and gives the impression that Blink has been fleecing investors to enrich management for years.

Addressable Market

At least a third of Blink’s value proposition comes from serving a market of EV users who don’t have consistent access to a home charging system. My best guess uses the Census data on US housing units with no parking space available, a bit more than 10 million - of these, say half still own a car and use street parking or another option to store their vehicle. The other large pool I see are residents of apartment buildings - about 25 million - that don’t provide or won’t install EV charging stations. Taking half again, I napkin-math estimate an addressable market of around 18 million potential US EV owners who won’t have ready access to home charging. To be more conservative and account for children, elderly, and those who choose to live car free (especially as urbanization and alternative transit continues to increase) I’ll use 14 million for my estimates.

High mileage drivers that need to charge twice or more per week face the prospect of several hours worth of charging. Some portion will have charging provided at work, though not for several years (and Blink will get a piece of this market as it develops) and perhaps half will be driven to seek out Blink chargers for the industry leading (besides Superchargers) power output. The other half will likely focus on price, where competition will be fierce and probably not profitable for anyone.

For low mileage drivers that require a charge once every two weeks, I expect the eventual behavior will be to charge up during a trip to the grocery store or a sit down restaurant - charging takes 20 to 40 minutes or longer, which means perhaps half of drivers will actively seek out something to do while waiting. Here Blink is strongly positioned, having a meaningful head start on signing deals with commercial hosts and offering a variety of options for installation and operations. A bit more napkin-math gives up roughly a quarter of the addressable market that could be reasonably expected to choose Blink charging over less expensive alternatives, or about 3.5 million US residents.

To get a rough idea of revenue per subscriber I take just under $400,000 in Q3 2019 revenue from charging services and divide by 150,000 subscribers from this September 2019 Blink presentation, for about $2.67 per quarter or $10.67 annually. The revenue does include non-subscribers who use Blink chargers, but I think these users are few as Blink kWh costs are marked up something like 50 percent compared to alternatives. Still, to account for this and for simplicity I’ll use revenue of $10.50 per subscriber, for about $1.6 million in revenue from charging in 2019.

Blink would need something like 1.5 million subscribers to cover company-wide operating costs from charging EBITDA in 2019. While cost of revenue will be elevated to build out the network, saturation will be achieved well within a decade given the small serviceable market, and SG&A will grow slowly if at all as charging revenues increase. 1.5 million users - 43 percent of the addressable market - can be achieved by 2040 with a 13 percent subscriber CAGR. It is too early to say, but my gut tells me this is a little optimistic without some outside intervention like additional tax credits or subsidies. Nevertheless, BLNK could be close to covering their costs just from charging revenue around 2040.

In the meantime, Blink will rely on product sales to become profitable. Current data does not give us much to work with, and what can be determined is pretty grim. By my rough calculation, even if Blink grew product sales (at a 30 percent margin) AND charging revenue by 10 percent every quarter for the next four years, they would still not generate enough EBITDA to reach profitability at 2019 expense levels. This leaves aside any future warranty issues and accounts for no additional equity capital financing, which are essentially guaranteed in the coming years. I don’t want to make any additional projections because the available data on adoption, margins, and quality control is already so scarce and contradictory.

Conclusion

To give Blink a second look I’ll need to see one or more of the following:

1. Significant product sales revenue and margin growth

2. Significantly reduced warranty expense, across several quarters

3. Substantial costs reductions, presumably taken out of compensation (over $5 million by Q3 of 2019 for under 50 employees)

It’s not that Blink has a fundamentally unsound business model, and by 2040 it’s not at all out of the question that Blink will be a household name, as ubiquitous as Shell or Chevron gas stations are today. Millions of users are going to require public EV charging, and Blink has the second largest network of charging stations and years of experience designing and running that infrastructure - developed using a shocking number of investor dollars. Those advantages are in time likely to help build Blink into a profitable business, but certainly not on a time horizon or at a cost I find remotely appealing. It should already be obvious from the issues highlighted above that Blink is not a realistic buyout target for anyone anytime soon, but I can’t recommend a short either because Blink is likely to pop regularly on positive EV news as the only real (if deeply misunderstood) EV pure play. I will be watching the next few quarters for potential progress on all of the above as EV adoption really starts to pick up in 2020, but before we have more information a position in BLNK would be little more than speculation.

Analyst’s Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.