2023-05-11 12:51:10 ET
Summary
- The EV adoption trend is accelerating, creating a rising need for charging and related services supported by subsidies.
- Blink Charging is one of the best players with a great product and services portfolio and strategic acquisitions allowing for accelerating revenue growth.
- Unfortunately, the company is not profitable, which is unlikely to change for at least two more years after 2023.
- While BLNK shares are fairly valued, I do not believe that the risk/reward is worthy of a long-term investment.
Introduction
Regardless of one's opinion on electric mobility, there is no denying that EV adoption is accelerating. According to a recent report from the Bureau of Labor Statistics, the number of EVs on America's roads jumped from 22,000 in 2011 to more than 2 million in 2021.
The BLS finds that this acceleration is fueled by the fact that consumers now have a wider selection of EV models to choose from, including large vehicles like trucks and SUVs, which were previously limited to compact cars.
Furthermore, battery technology has improved, resulting in increased vehicle range and a reduction in range anxiety. EVs can also save consumers money in the long run due to lower maintenance costs and falling battery pack prices.
Government policies, such as tax credits and rebates, have encouraged EV adoption, and the Infrastructure Investment and Jobs Act has allocated funding for a nationwide charging network. As the number of EVs on the road increases, more charging infrastructure will be needed, creating opportunities for various occupations involved in deploying and supporting the buildout of EV chargers.
That's where Blink Charging (BLNK) comes in, one of the world's largest charging companies with a market cap of roughly $430 million.
However, instead of benefiting from the acceleration EV trend, shareholders have lost almost everything in recent years.
In this article, we'll assess whether BLNK is a diamond in the rough or a dumpster fire one should avoid.
So, let's get to it!
EV Adoption Is Set To Grow
As I said in the somewhat lengthy introduction, EV adoption is rapidly rising.
According to consumers, one major reason to go for EVs is the environment. That's according to the BLS report I mentioned in the introduction. However, it's only made possible through high government subsidies.
That's only expected to become a bigger tailwind. As reported by Bloomberg last month, The US Environmental Protection Agency ("EPA") has proposed stringent vehicle pollution limits to reduce pollution.
Under the new plan, carbon emissions would be capped at 82 grams per mile by 2032, representing a 56% reduction from model year 2026 standards. The proposal is aimed at reducing greenhouse gases, tackling the climate crisis, and improving air quality. If the targets are met, it will effectively require two out of every three cars sold in 2032 to be EVs, which is a big deal!
According to the same report, White House National Climate Advisor Ali Zaidi claimed that the new standards would be supported by a surge in federal government spending on charging stations and tax incentives.
The EPA estimated that the proposal would result in benefits of up to $1.6tn through 2055, including a reduction in premature deaths, cardiovascular illnesses, aggravated asthma, heart attacks, and decreased lung function caused by pollution.
With that said, I am extremely skeptical when it comes to these issues, as I do not believe that the energy transition is feasible. It will require too many materials (as I discussed in this article ) and turn our economies into planned economies supported by government subsidies.
Why Is The BLNK Stock Such A Dumpster Fire?
This is what I wrote in September 2022 (emphasis added):
The problem is that Blink won't be profitable in the foreseeable future . It also doesn't help that the industry is extremely competitive and that the macro environment gives growth stocks, in general, a very hard time.
I'm also not a fan that this industry is (almost) completely driven by subsidies . This makes it a very political play dependent on who's in charge.
Now, BLNK is down 73% from its 52-week high. It is down 35% year to date and down 56% over the past six months.
BLNK Has A Strong Business Model
This decline is not caused by a bad business model. When it comes to offering charging solutions, Blink is among the best players. The company is fully integrated, offering the most flexible business models to property owners, as they control their own design, manufacturing, and network services.
With a market cap of $430 million, Blink provides hardware and software to their hosts, splits revenue with them, and also owns and operates chargers. This flexibility, along with vertical integration, makes Blink stand out from its competitors in the EV space.
These products and services have allowed the company to become a major partner of a number of major automotive companies, supply chain giants, hospitality companies, governments, and many others.
Blink recently acquired Israeli-founded Envoy, an EV car-sharing company, in a $34 million deal. While this isn't a huge game-changer, it helps diversify BLNK's business in areas that I'm quite bullish on. According to the Times of Israel :
The idea is that the shared use of electric cars becomes a perk offered by luxury apartment buildings, hotels and workplaces. The on-demand EV sharing service is charged by the hour or by the day, using a mobile app to reserve and access vehicles, driver insurance, maintenance, and on-site EV charging stations.
Moreover, the company received a $7 million grant from the State of New Jersey to implement rideshare services and charging for EVs in underserved communities.
Blink also announced an IDIQ contract with the United States Postal Service to provide up to 41,500 EV charging stations and network services. Blink shipped the first order in April. The company expects long-term collaboration with the United States Post Office and other government entities.
That said, Blink has contracted, sold, deployed, or acquired over 38,000 chargers, both domestically and internationally, bringing the total charger count for the company to nearly 73,000 chargers since its inception. 78% of the company's chargers were deployed in North America.
The bad news is that this isn't leading to profits - at least not yet.
Blink Is Burning Cash
In 1Q2023, the company grew its revenue by 121% to $21.7 million. Product sales for Q1 2023 were $16.4 million, a 104% increase from the prior-year quarter. The growth in product sales was primarily driven by the increased volume of Blink's commercial chargers, DC fast chargers, and residential chargers. Product sales in Q1 2023 also include revenues generated from the previously acquired companies SemaConnect and EB.
Growth in the company's services was even stronger.
In 1Q23, Blink reported service revenues of $4.8 million, consisting of charging service revenues, network fees, and ridesharing revenues. This marks a significant 216% increase from the same quarter in the previous year, driven by several factors like greater utilization of Blink's chargers, a higher number of chargers on Blink Networks, revenues associated with the Blink mobility rideshare program, and incremental service revenues from acquisitions.
Needless to say, the company's revenue growth perfectly confirms the rapidly rising adoption of electric cars.
The issue is profitability.
Blink's gross profit for 1Q23 was approximately $4.5 million, an increase of 186% YoY. The gross margin was 21% in that quarter, a 4,800 basis points improvement when compared to the prior-year quarter.
So far, so good.
However, operating expenses in 1Q23 were $35.4 million compared to $16.6 million in the prior year period. The year-over-year increase reflects the increase in non-cash share base compensation of $5.8 million, increases in non-cash amortization of intangible assets of $1.8 million, and operating expenses associated with the acquisitions of SemaConnect and EB.
The increase in share-based compensation was massive. However, even in 1Q22, the company's SBC was above $2 million.
This is what the company's share count looks like:
Blink's adjusted EBITDA in 1Q23 was a loss of $17.8 million, compared to a loss of $12.4 million in the prior year period, largely due to the aforementioned higher operating expenses.
Based on this context, the company has an issue:
- Its sales are rapidly rising, confirming that it is, indeed, capable of exploiting the EV trend and the many subsidies that come with it.
- Due to high costs, it is not profitable. Boosting profitability by hiking costs would rapidly deteriorate the company's competitiveness and hurt growth. After all, it remains a debt-fueled money-burning industry.
However, there seems to be light at the end of the tunnel.
In the coming quarters our operating losses will progressively come down as our business model scales and revenues grow faster than our operating costs . While I don't want to pinpoint an exact timing given we have a lot of moving parts including such things as acquisition, integration, additional synergies, new product launches. What I can share is that achieving sustained and positive free cash flow is our priority , and let me make sure everybody understands that, this is our priority.
Looking at the chart below (again, based on current expectations and excluding any M&A or new product launches), we see that the company is not expected to be profitable for another two years.
In this situation, it helps that BLNK has a healthy balance sheet.
- The company has $103 million in cash and cash equivalents, $28 million in receivables, and $40 million in inventory.
- The company has only $320 in financing lease liabilities and $10 thousand in notes payable. Its balance sheet is no problem.
Furthermore, the company's valuation reflects the situation of rapidly rising sales.
The company is trading at 5.4x sales. That valuation drops to 2.8x using 2024E numbers.
While this valuation is back to pre-COVID levels, this is not a guarantee that BLNK is a buy.
- BLNK isn't profitable for another few years, which comes with new risks.
- New competitors could slow growth.
- Subsidies could fade.
- What if EV adoption is going to slow? Rising costs could trigger that.
Takeaway
Blink Charging isn't a bad company - at all. The company has figured out how to exploit the trend of rising EV adoption, which comes with a desperate need for new charging stations and government subsidies.
The company has great products, services, and partnerships that will allow it to be on top of this EV trend for many years.
Unfortunately, the company is losing money. Its operations are expensive, and they come with high stock-based compensation. Hence, BLNK shares are 73% below their 52-week highs.
With that said, the valuation is fair. However, I cannot make the case that BLNK is a buy. There's just too much risk involved - especially with regard to the speed of the EV adoption trend and subsidies.
I will, therefore, remain neutral and remain on the sidelines.
The only situation where I would be a buyer is as an election play. When combining the valuation and the high likelihood of accelerated (and targeted) spending going into a major election year could trigger a mid-term rally - especially because the company's short float is 34%.
However, this is a high-risk play. I do not recommend investors become active traders.
For further details see:
Blink Charging: EV Champion Or Dumpster Fire?