It’s becoming pretty clear that now is the time to be investing in electric vehicles.
According to Bloomberg NEF and Ark Invest, electric vehicles will reach
price parity with gas-powered vehicles in 2023,
and will become cheaper than traditional ICE vehicles moving forward.
This will catapult the sales of EVs in the coming decade,
with estimates by Ark Invest that expect 40 million EVs sold by 2025,
and the International Energy Agency estimating over 250 million EVs sold by 2030.
There are a lot of these lofty estimates out there, but no matter how you look at it,
electric vehicles are going to take off in the near-term.
As an investor, there’s a lot of ways to profit from this growth,
but today I want to focus on the potential in electric vehicle charging stations.
Specifically, I want to look at the stock SNPR, a SPAC from Tortoise Acquisition Corp
that recently announced their merger with Volta Charging.
I think Volta Charging is a particularly compelling opportunity in the universe of charging
station stocks, so we’ll be taking a look at their business and how they stand out from the crowd.
The way I see it, they’re just as much an advertising business as they are an
EV charging station business, and that’s worth a closer look.
Then we’ll spend some time on the potential valuation of this company,
which makes this stock even more compelling. We’ll compare it to other EV charging stocks to estimate
some price targets and then I’ll share my personal strategy for investing in this stock. Stay tuned!
Volta Charging is an electric vehicle charging station business that has positioned themselves
to benefit from the disruption coming to the gas and fueling industry. As this trend towards
electric vehicles continues, gas stations are going to be losing a lot of revenue,
which is why companies like Shell are aggressively investing in EV charging solutions.
However, the difference with gas fueling and EV charging
is that gas fueling only takes a few minutes.
You can stop by a gas station and fill up on the way home. But with electric vehicles, you’ll need
to keep your car plugged in for at least 20 to 30 minutes to get any meaningful charge and mileage.
And until this technology improves, Volta believes that people won’t be driving out of
their way and parking their vehicle at a charging station to recharge. So not only are EVs going to
disrupt the gas industry, but also the way we fuel our vehicles. To capitalize on this,
Volta isn’t focusing on large-scale charging sites to replace gas stations. Instead, they’re focusing
on deploying charging solutions where consumers are already going and parking their vehicles.
Specifically, Volta supplies charging stations in high-volume retail settings,
where people might be going to pick up groceries, get a bite to eat or just shop around. These are
settings consumers are already driving to and parking at for an hour or two at a time,
which is the perfect opportunity for them to conveniently charge up their vehicle.
And if you encourage customers to park and charge their vehicles, they’re more likely to spend more
time and money as they shop around, which also extends some benefits to the nearby retailers.
Now I do want to note that Volta isn’t the only one doing this,
as both EVGo and Chargepoint offer retail charging solutions.
But Volta has a key differentiator in this setting that I think will make
them far more successful than these and other competitors.
This differentiator is their patented charging station system, complete with a massive and
beautiful screen display. While other charging station providers are only monetizing the
actual charging of electric vehicles, this screen display enables Volta to generate two additional
revenue streams from their product. So let’s take a look at how they combine advertising,
data and EV charging to create what might be the most robust charging solution on the market.
By putting a screen on the charging station, Volta has tapped into a huge potential revenue stream
from advertisers. Now, businesses can pay to have digital ads placed on these charging displays.
Since these displays are located in retail settings, often right outside of stores,
advertisers can capture a consumer’s interest as they’re walking into a store to spend money. Even
if you’re not personally charging your vehicle here, the screen is big enough that you won’t
be able to overlook it as you walk by. So with the installment of these charging stations, Volta has
created a powerful new advertising opportunity for businesses to catch consumers’ attention.
And the results that this form of advertising has driven so far are quite impressive. An organic
food brand was able to increase sales by 35% by advertising their product outside of whole foods.
Volta also partnered with Nissan to advertise their EV, the Nissan Leaf, which drove huge
results without even being located by a Nissan dealership. These ads boosted product awareness
and even led to more visits to Nissan dealerships, despite charging stations being located elsewhere.
This brand new avenue for advertising is clearly effective,
which would make it a highly sought after advertising space
both for businesses located near the charging stations and elsewhere. And again, no one is
advertising here yet, which would make Volta the primary beneficiary of a brand new market segment.
So there is a big potential revenue opportunity here from advertisers, which gives Volta a way
to make money without even considering what customers are paying to charge their vehicles.
And the benefits of this advertising potential are even bigger when you consider Volta’s potential
with data. Of course, with each vehicle, they’re able to collect data on how long the vehicle stays
there, which gives them insight into how beneficial their charging stations can be
for local businesses. Additionally, they collect data on what they call “full funnel behavioral
understanding”, helping them get feedback on what stores they go into and what products
they buy. When you combine this data with the advertising campaigns displayed on the screen,
Volta can provide potential clients with some really powerful information
for maximizing their ROI through advertisements. So this data will only further drive the results
and revenue from their advertising, and can also be monetized itself by selling it directly.
Additionally, Volta is using this data themselves to optimize their expansion. They can use data
to determine where they’ll experience the highest demand for their charging services,
and deploy their charging stations accordingly. Furthermore, they can use this data on a larger
scale to determine where it will be most impactful to deploy new charging networks.
Of course as an EV charging station business,
one of their primary sources of revenue should come from charging vehicles.
However, Volta is breaking from the norm once again and actually offering FREE EV charging.
Although this seems counterintuitive, this is actually a really strategic decision.
The cost of charging is going to be a point of competition between various EV charging providers.
Volta has cut that cost to 0, making it the obvious choice for anyone who needs
to recharge their vehicle. So for the electric vehicle owner, if you have the option between a
Volta station and a competitor’s station, you’re going to choose Volta every time.
And businesses understand the potential appeal of free EV charging.
If a business is going to choose between charging stations, they’re going to choose the one that
will bring in the most customers. Since only Volta allows customers to charge for free,
they’re going to win that decision without question. Then you get all of
the advertising benefits on top of that, which makes it an even stronger choice.
Volta is able to offset the cost of this free charging by collecting revenue from advertisers
and the retail sites themselves. They also put a cap on how much free charging a vehicle can get.
So for example, you might only get 15 or 30 minutes of free charging,
and then you pay for any additional charge you consume after that. They’ll also charge
fees for idling if you remain parked in the space after the vehicle is fully charged.
So Volta is the only free EV charging station out there,
which gets businesses to choose Volta installations over other charging stations
and gets more drivers to show up. After this, they’re able to more than make up for
the cost of giving away electricity by collecting revenue from advertising and additional charging.
While it seems like a lot of EV charging station businesses are trying to be everywhere at once,
I appreciate that Volta is focusing on these concentrated, high-volume areas
where they can maximize their profitability and usage. And this is why Volta claims that
their charging stations have the highest usage rates of any charging station brand out there.
They’re located where the consumers are already going, offering huge advantages to both EV drivers
and businesses, and they’re focused on some of the busiest retail settings in the country.
They’ve already partnered with some huge brands for advertising, and they’ve just recently
partnered with Amazon to provide charging stations at their first grocery store location.
So I think all of this information verifies Volta’s potential in the EV charging space, and
suggests why it has at least earned a spot next to the other charging station brands on the market.
And considering Volta is at least comparable, if not superior to other charging station businesses,
I think its valuation compared to these other stocks makes it all the more compelling.
According to their investor presentation, all of Volta’s competitors trade at 5 to
10 times higher valuations based on enterprise value to revenue multiples
and enterprise value to EBITDA multiples. So that alone shows
that this company is significantly undervalued compared to its peers.
However, this was with the stock priced at $10, and now that it’s trading around $15,
things are a little different. So I’ve recalculated their enterprise
value based on current prices, which came out to be about $2.4 billion.
Then I used this along with their 2024 and 2025
revenue and ebitda to recalculate their current valuation multiples.
At $15, here are the valuation multiples Volta is trading at compared to EVgo and Chargepoint.
So it looks like Volta’s competitors still have valuation multiples that
are approximately 3 times larger, meaning Volta is indeed undervalued.
Chargepoint clearly has some higher EBITDA valuations, and EVGo’s are even a bit lofty.
In any case, we can use these as metrics to estimate what Volta stock would be trading at
if it were valued similarly to its competitors.
I’m not going to use the higher multiples of Chargepoint,
because they are a little extreme and I want to get a safer,
low-end estimate for this stock. So we’re going to use the multiples for EVGo, which
are coincidentally very close to the valuation multiple estimates that Volta themselves provided.
To calculate the stock price, I am multiplying each of these valuation multiples with either
the forecasted revenue or EBITDA of each year. Then I am subtracting the reported debt of 52
million and adding the cash of 662 million to get the market cap. Then we’ll divide by the
number of outstanding shares, 203.1 million, to get the share price at each valuation multiple.
By doing this, we get prices ranging from the low 30s to the mid 40s.
So I’m going to ballpark Volta at about $35 when it trades at valuations similar to its peers.
Just to be clear, this is entirely an estimate using forecasted numbers
and assumes no change in outstanding shares, debt or cash on hand.
But, considering the excitement surrounding EVs, the hype surrounding SPACs,
the Biden Administration’s commitment to EV infrastructure
and all of the unique qualities that Volta has going for it, I think it’s very reasonable for
Volta to achieve valuations comparable to its peers and hit a $35 price in the near
term. Whether this happens before or after the SPAC merger finalizes is anyone’s guess,
but I feel pretty good about it happening at some point in 2021.
So for now, I’m going to grow a position in SNPR and Volta until we start approaching the $25 mark,
and I’ll probably be looking to lock in some profits over $30
to be safe. I’m personally doing this with some long-term deep in the money call options
to get exposure to the stock at a discount,
magnify my returns and hopefully reduce some risk by selecting the longest-possible time frames.
I’m still unsure if this will be a long-term holding for me, because I think there is still
a lot of room for disruption and new businesses in the EV charging space. So my current plan is
to simply sell these call options for a profit if it nears the price targets we discussed earlier,
but I may change my mind and exercise them in the future
if Volta continues to define itself as a unique player in the EV space.
But that’s it from me on this stock. If you want to dig deeper, I’ll link the investor
presentation in the description. And I hope if you enjoyed this video you’ll
consider liking it and subscribing to the channel. I’ll see you next time!