Some of the electric vehicle startups that have gone public in 2020 have resembled business plans more than businesses, with years to go before having production models on the road, let alone profits to show for it. Many are great business plans no doubt, and that’s how companies are built. But not all investors are eager to bet on a stock that has so much left to prove.
Lion Electric—the latest EV maker to announce a merger with a special purpose acquisition company, or SPAC—has a bit more for investors to assess. It already has seven models of trucks and buses for commercial customers, a manufacturing facility capable of producing 2,500 vehicles a year, and potentially thousands of orders in the next few years. Management expects to turn a profit next year.
After its deal with
Northern Genesis Acquisition
(ticker: NGA), Montreal-based Lion will also have nearly $500 million in cash to build a second production facility capable of producing more than 20,000 units annually as well as vertically integrate into the design and assembly of the battery modules and packs powering its vehicles.
Announced on Monday, the merger values Lion Electric at about $1.9 billion. Management expects the deal to close early next year, when the merger is complete Lion will begin trading on the New York Stock Exchange. The stock symbol will change from “NGA” to “LEV.”
Lion isn’t selling passenger cars. They are carving out a different niche in electric vehicles making school busses and commercial trucks. Lion’s school busses take on traditional school bus makers such as
(BLBD). Lion’s trucks take on models from companies such as
(NAV). Many of Lion’s trucks are targeted at applications such as waste hauling and utilities.
Most of the traditional products Lion competes with are powered by diesel fuel. But electric vehicles make a lot of sense in commercial, fleet applications. Those vehicles, for starters, are driven more than passenger cars so the benefits from cheaper electricity for charging versus diesel accumulate faster.
Commercial vehicles can also be charged centrally at a fleet operator’s depot. And electric vehicles are easier to maintain, with less complicated propulsion systems. Taken together, commercial EV can offer as good or better total cost of ownership compared with their diesel cousins today. That’s before any government incentives pushing zero emission vehicle purchases.
Traditional companies are investing in electrification technology too, but Lion CEO Marc Bédard believes EV start ups have several advantages. “Focus makes a huge difference,” Bédard tells Barron’s. “Other [truck makers] are defending their diesel legacy and this is slowing them right now.” He pointed out his company has spent five years developing battery management systems and EV truck chassis. What’s more, Lion has charging expertise and works with
(ABB) as a reseller for EV charging infrastructure.
Another big reason he thinks pure-play EV companies will win is how they go to market. Legacy truck makers sell through dealer networks. “The dealer doesn’t make any money on EV,” says Bédard. “The aftermarket sales [with EV] are about 30% of what they are in diesel space.” He thinks truck dealers might be conflicted about prioritizing EVs over diesel engines.
Lion has had early traction selling its products and says the company has firm orders in place for several hundred trucks and buses in 2021, and sees up to 6,000 orders from its current pipeline. Customers tend to purchase a handful of vehicles at first, test them out in working conditions, then scale up their orders based on that experience. Existing customers include
“Our sales people are just going nuts,” Bédard tells Barron’s. “And the good thing is that the customers can actually drive the trucks and the buses before they order them.”
Lion also has a multiyear purchase agreement with an unnamed customer for up to 2,500 Lion6 and Lion8 trucks. That deal includes an equity warrant that vests in line with how many trucks the customer orders. If the customer spends at least $1.1 billion with Lion—more than the current order for up to 2,500 trucks—then it can receive warrants that would translate to about 7% ownership of post-SPAC merger Lion on a fully diluted basis.
That warrant means dilution for other shareholders. But it also means that the mystery customer is likelier to purchase its next 2,500 or more trucks from Lion as well, given its by-then sizable stake in the company. It already has a 1.2% stake based on its orders so far.
Lion expects to sell 110 vehicles this year, followed by 650 in 2021. By 2024, management forecasts 18,400 units sold. Lion projects revenue and earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $204 million and $29 million, respectively, next year. It sees that rising to $3.6 billion in sales and $707 million in Ebitda in 2024.
Its second, U.S.-based, manufacturing facility should be operational by 2023 and cost roughly $130 million. Lion also plans to be making its own battery packs by the end of 2022.
After the merger with Northern Genesis, Lion’s current shareholders will own nearly 70% of the public company, with SPAC shareholders owning 20.5%. The $494 million in deal proceeds after expenses for Lion come from Northern Genesis’ $320 million trust, plus a $200 million private investment in public equity, or PIPE. PIPE investors will own 10.3% of Lion stock once it’s public next year.
Northern Genesis went public in August, with a focus on sustainable energy investments. Its co-founders Ian Robertson and Christopher Jarratt—both former executives at
Algonquin Power & Utilities
(AQN)—will join Lion’s board of directors once the deal closes.
Northern Genesis stock, which will become Lion, rose 7.4% Monday after the deal announcement. Shares dropped 5.7% Tuesday, but Tuesday was a tough day for many EV stocks.
U.S.-listed EV stocks dropped about 8.4% on average Tuesday. The
added 1.1%. The
Dow Jones Industrial Average