Electric Bus Company Proterra Offers Stock to Public
It’s always worth recounting the old story about the brokerage firm that audited their best performing retail accounts only to find that they were the ones the owners had forgotten about. It’s about time in the market, not timing the market, an adage that’s all but lost on today’s Robinhood weekday warriors who eat up drivel like this:
Instead of trying to find the next Microsoft, focus more on trying to avoid the next Bind Therapeutics. You’ll grow your wealth a whole lot quicker if you figure out how to preserve it by not taking on excessive risk. If there is a “next Tesla,” they’re probably not going public using the back door route – a special purpose acquisition company (SPAC).
We’ve advised our readers to largely avoid SPACs save for a few exceptions like Desktop Metal or Butterfly Network. That’s because these vehicles aren’t doing retail investors any favors. Throw in all the hype you see around tech stocks these days and it’s a recipe for disaster. Until investors return to their senses, company leaders will make hay while the sun shines and load their coffers with capital. Nowhere has this become more apparent than in the world of electric vehicles. Today, we’ll look at a SPAC on offer from electric bus company Proterra.
Founded in 2004, San Francisco startup Proterra has taken in just over $680 million in funding from dozens of notable names including Softbank, BMW, General Motors, Daimler, and Mitsui. Now, the father of SPACs with the name that’s impossible to pronounce – Samir Nagheenanajar – is asking Proterra to back their assets up into one of his many SPACs, ArcLight Clean Transition Corp (ACTC). As you would expect, the Robinhood lot has already climbed aboard the money train – choo choo! – sending share prices up +160% before the deal has even closed. Let’s look at what might have been presented in the glossy SPAC deck that could justify this pointless price appreciation.
Not overly impressed to see the company comparing themselves to SPACs like Nikola and Hyliion, and the same goes for the valuation slide comparing their 2020E $193 million in revenues to a bunch of zeroes. (Today, it’s seen as some big accomplishment when a SPAC comes to the table with traction.) There’s the usual comparison to Tesla and Plug Power to show what a bargain shares of Proterra are, then the icing on the cake. It’s the first time we’ve seen a SPAC shows how their forward-looking revenue growth estimate – a compound annual growth rate (CAGR) of +68% over the next five years – is much more reasonable than everyone else’s triple-digit growth projections. The folks over at Proterra are well-grounded and realistic, only expecting to grow slightly faster than Tesla has.
These dime-a-dozen SPAC presentations must all be using the same investor relations firm because you get that same queasy feeling in your stomach after reading each one. There’s just so much missing that it’s impossible to make any sort of decision. So, let’s tease out some insights.
In a call announcing their debut on the public markets, the CEO quips:
We’ve sold a thousand electric transit buses with 550 on the road today; our battery system technology is proven and validated with 16 million miles; and we’ve deployed an industry-leading 54 MW of charging systems.”
Let’s forget about the 450 buses they sold that aren’t on the road and focus on the ones that are.
Are Electric Buses Economically Viable?
Some people hire interns and pay them a livable wage, some hire them and pay them nothing, but we opt for the best solution of them all – don’t hire them, don’t pay them, and use their work anyway. Today, we want to talk about some work our faux intern team did on the “Costs and Benefits of Electrifying and Automating Bus Transit Fleets.” After running the numbers, the team found that battery-electric buses (BEBs) are not economically viable. The analysis relies heavily on the cost of diesel fuel which was presented in the model at $2.00 a gallon. (It’s about $2.40 a gallon at the moment). The higher diesel fuel climbs, the more economically viable electric buses become. After months of research, the team concluded the following:
Cost competitiveness of electric buses at current purchase prices occurs when diesel is at $3.30 per gallon if the diesel bus purchase price is $300,000 or when diesel is $2.14 per gallon if the diesel bus purchase price is $450,000. This is assuming a 4.0 miles per gallon (MPG) for all diesel buses.Credit: Neil Quarles, Kara M. Kockelman, and Moataz Mohamed
Below are the variables used for the model.
In looking at all the inputs, there are lots of moving parts. Proterra stresses how they’ve been able to relentlessly reduce costs and plan to do so going forward. We know that batteries are rapidly becoming cheaper. Seems like only a matter of time before electric buses make more economic sense than not, and we haven’t even considered hybrids yet. (More on this in a bit).
As always, you can torture the data until it proves your point, but the key takeaway here is that autonomous electric buses are economically viable under most scenarios today, regardless of how the variables move. Bus drivers are one of the highest current operating costs of transit agencies, so perhaps we ought to be looking at who is developing autonomous buses and skate to where that puck will be instead.
Getting back to those 450 buses sold, Proterra talks about their “50-plus percent market share,” with busses operating “in 120 communities across the US and Canada.”
What this seems to imply is that there’s lots of dabbling in electric buses across the States, but no operator appears to have converted a meaningful percentage of their entire fleet.
Let’s use The Chicago Transit Authority (CTA) as an example. They’re presently operating the nation’s second-largest public transportation system with nearly 2,000 buses. Just replacing one-third of their diesel buses with electric buses would mean they would have more electric buses than Proterra, a company with 50% market share. Back of the napkin math says that electric buses just aren’t taking off as one would expect. But that’s all going to change of course, as the ESG types demand that all buses move to zero emissions.
The fully electric bus that Proterra has designed may not be the answer here. You don’t need to go fully electric to realize zero emissions. Check out the below excerpt on Volvo hybrid buses.
Volvo’s hybrid buses are what is known as full-hybrids, which means that they run entirely free of emissions, on electric power, from start up to 50 km/h and also when the bus is at a standstill at the bus stop. In all other situations propulsion is handled by a small diesel engine.
Unlike plug-in hybrids and electric buses, Volvo’s hybrid buses require no charging infrastructure. The batteries are charged via the energy that is generated through brake energy recapturing. As a result, hybrid buses can be used on virtually any bus route both in urban areas and in the suburbs.Credit: Volvo Buses
It’s tempting to think that Proterra has not been able to fulfill a large order for a single customer, something that will allow them to scale much quicker. (If they filed an S-1, we wouldn’t have to speculate about that.) While there may be plenty of transit operators piloting the technology, they’re just not finding it economically viable to convert large parts of their fleets. Now that oil prices have tanked, it’s even less of a compelling value proposition. Sure, the new administration may provide some tailwinds for Proterra, but will it propel them to the ranks of Chinese electric vehicle giant BYD?
Electric Buses Made in China
In a press release about how BYD (1211.HK) has sold 100 electric double-decker buses in the U.K. last year, the company asserts their global leadership position – more than 50,000 pure electric buses and coaches delivered to date. Another press release from late 2019 talks about how “current sales of electric buses in Latin American public transport reached 1,462 units at the end of 2019 and most of them involve BYD, with a 71% market share in the region.” In December of 2019, Green Car Reports noted that BYD American factory “passed its 400th electric bus delivery, with the fulfillment of a 20-bus order to the Los Angeles World Airports.” Proterra certainly needs all the capital they can get to compete with a company that’s selling large-lot orders of electric buses like Beijing pancakes.
Another interesting takeaway from the Proterra deck is their plan to make electric buses less of a focus over time as seen in the below forward-looking forecast involving the conservative +68% CAGR revenue growth.
In just five years’ time, Proterra expects that less than 31% of their revenues will come from electric buses with the majority coming from electric powertrains, batteries, fleet-level chargers, and energy management.
If you’re bullish on electric buses, and you also want to avoid putting all your eggs in one American basket, consider buying shares of BYD instead. Of course, you’ll need cojones of steel to pull the trigger on that trade. Shares of BYD have soared +390% in the past year alone. It’s been a while since we looked at the company, so we may queue up a piece on BYD in the coming weeks. In the meantime, the Proterra SPAC is one we’ll be avoiding.
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