I don’t have a lot of big picture updates or changes in my portfolio to report on this week, we’re pretty much in the same situation we were a few weeks ago with our seesawing emotions driven by the Federal Reserve and it’s inflation battle. Things were looking optimistic earlier in the week when Fed Chair Jerome Powell said more clearly that the pace of rate hikes was likely to slow, maybe even at the next meeting (which is in about 10 days), and when the Core PCE inflation numbers came in a little lower than expected, giving hope that the trend is moving in the right direction… and then they looked pessimmistic again when the jobs numbers came out today, with unemployment staying very low and the number of new jobs much higher than expected, so that seemed to signal that the economy is not slowing down and therefore inflation, which is driven in part by wage inflation, is not yet slowing down enough.

The seesaw leans one way, then the other, and we don’t get to know when it might level out. Even if we are convinced that we know what the impact will be of the railroad strike, or the latest moves to control oil prices, or the latest developments from Ukraine or Taiwan. The big picture is out of our control, and trying to overthink it ever week isn’t doing us much good.

So with no big news to consider from my investment portfolio, let’s take a small break from the big-picture overreaction machine this week, and look at a couple teasers. We are pretty steadily confronted with “next Tesla” EV stories, even now that most of the EV stocks have fallen dramatically, and I’ve got a little pile of questions about the latest batch from Jeff Siegel at Green Chip Stocks — it turns out, he’s been teasing two different EV-related stocks as “Tesla Killers” of one type or another, and I haven’t written about either one recently, so let’s dig in and see what the story is.

If you want a catch-up on other EV stock teasers, by the way, the most prominent one of late has been from Nomi Prins (prominent as in “most heavily marketed,” that’s not a quality judgement), she’s still promoting the “liquid energy” battery company (“Why 5 Billionaires are Betting Against Tesla and Buying this $4 Stock”)… that company, ESS Tech (GWH) now has a $3 stock price, is still following the path of other SPAC EV and battery stocks of recent years with revenue that’s lower than forecast and expenses that are much higher. and Enrique Abeyta is still pitching his “next quarter, the truth will come out” story about Ford (F), based on his theory that the company will celebrate the success of the F-150 Lightning and the Mustang by spinning off their EV business, creating the most successful EV company. We’ve also got some new “Tesla Killer” pitches about hydrogen stocks, I haven’t written about those recently but I just read one that’s clearly teasing the perennially hyped Plug Power (PLUG), and may get into that one in more detail next week.

But for today, let’s look at the two different stocks being teased by Jeff Siegel. One is more of a heavy duty commercial vehicle player, think electric buses… and the other is the self-recharging story of a solar-powered EV company. (He’s also still promoting the “endless clean energy” of that “liquid coating for every window” solar company as a Tesla killer, though that’s just yet another repeat of his long-running tease for SolarWindow (WNDW), which has been an overhyped R&D story for a dozen years, but I covered that one (again) just a few months ago, so we’ll focus on the two newer pitches today.)

Ready? Let’s look at the commercial vehicle one first. The headline there is, “Tesla Execs Ditch Musk to Create World-Record-Breaking EV” — here’s how recent emails have spun the tale (this particular email hit my inbox in October, though it looks like Siegel has been running this promo, mixed in with many of his other EV stories, for several months):

“While we spend a lot of time talking about daily commuters driving EVs, the big money is actually in the electric bus sector.

“According to Bloomberg, the advance of electric buses will not only exceed the growth rate of electric passenger cars, but in almost all charging configurations, electric buses have a lower total cost of ownership than conventional municipal buses….

“This particular company is involved with everything from charging stations to batteries to the buses themselves. And it’s also directly connected to the biggest transportation players in the world, including Tesla, Honda, Daimler, GE, Delta, and Mercedes-Benz.

“In its most recent quarter, the company saw a 27% increase in total revenue ($74.6 million compared with $58.5 million in Q2 2021) and a 93% increase in battery production, delivered 52 new electric buses, and had more than $500,000 in cash and cash equivalents.

“While the market’s been in a tailspin, this relatively unknown electric bus manufacturer has been crushing it, and orders continue to roll in.

“I know everyone wants to get in on the next Tesla, but the next Tesla is not an electric car company. It’s an electric bus company. And when all is said and done, this thing could absolutely be bigger than Tesla.”

And the ad goes into why those ex-Tesla folks started this new company, and what their innovation was:

“This brilliant team of engineers created an EV that set a new WORLD RECORD…

“It clocked the longest distance ever driven by an EV on a single charge…

“At a whopping 1,102 miles!

“That means you could drive from Boston to Jacksonville, Florida, without having to stop at all.

“That’s almost triple the range of the best EVs out there.

“Heck, a 1,100-mile range trounces even the most fuel-efficient gas vehicles on the road.”

And he highlights that commercial/industrial opportunity — which makes intuitive sense, fleet vehicles that run on set routes and sleep in a commercial garage overnight are an easier “clean energy” challenge than individual passenger cars, whose users have a much wider range of needs and expectations.

“This $5 firm is conquering a rapidly growing sector of the EV market worth $340 billion…

“Which is growing EVEN FASTER than electric cars….

“… industrial vehicles of all shapes and sizes, including vans, buses, trucks, tractors, and even super-huge ocean vessels, are being electrified.

“And most folks don’t realize they’re being electrified even faster than passenger vehicles!

“Due to the massive savings in fuel costs and vehicle maintenance compared with gas-powered vehicles…

“We’re witnessing HUGE demand from some of the world’s largest corporations:

“Amazon purchased 100,000 electric vans from Rivian.

“UPS is buying 10,000 electric vans from Arrival.

“FedEx pledged that its fleet of delivery vans will be 100% electric by 2040.

“States are instituting mandates for zero-emission commercial vehicles….

“Almost every U.S. state has a transit agency that currently owns or is planning to own new electric buses.

“The demand for electric buses is already HUGE — and it’s still growing.

“Because when such a fleet goes fully electric, the cost savings for transit agencies will easily go into the MILLIONS.

“Per Automotive World, “Within a decade it will be difficult to imagine any bus fleet purchasing manager still considering diesel.”

So what is this $5 stock? This is the California electric bus maker Proterra (PTRA), which, like so many other EV stocks, went public through a SPAC merger — their SPAC deal was announced in early 2021 and closed in June of last year, and, as you might imagine, the valuation was optimistic and the stock was a hot story for a while. The lather over the story drove the stock up to $30 back in those heady days of early 2021, though by the time the deal closed it was back down to the expected SPAC value of about $10… and this year, with speculative fervor draining out of the market, it fell down to about $5 in the Summer. It remains around that level today, at about $5.40 per share and with a $1.2 billion market cap.

So what’s to like about Proterra? Well, it is a real company — they’ve been selling electric buses and power packs for more than ten years, and according to some reports (like this note from Barron’s) they have close to 50% market share in the United States. The other big names that come to mind in electric buses are BYD Corp in China, which is the global leader, and NFI in Canada, which also sells a lot of diesel buses. The up-and-comer stock in this space that has been pretty heavily teased in recent months has been Lion Electric (LEV), which is focused on commercial electric vehicles and has a decent order book, particularly for electric school buses (2,085 buses on order as of last quarter). Proterra, incidentally, has a decent school bus connection, too — they sell power packs and drive trains to Daimler, which uses some of them for their Thomas School Buses division (Daimler is also an investor in Proterra).

They are not quite profitable, but they are growing their revenue nicely (the trailing year’s revenue is about 30% higher than it was a year ago), their margins seem to be improving slightly, so there’s some reasonable hope that they can become sustainably profitable as they scale up further. And, thanks to the lustiness of the SPAC boom 18 months ago, the company has a decent cash pile to burn through as it pushes for profitability — they used about $250 million in cash over the past year, and have another $400 million or so available. If analysts are close to accurate in their estimates, that would mean they have enough cash to get them through to 2025 or so… at which point they should be awfully close to becoming profitable, or at least burning through much less cash.

Of course, “should” is not a guarantee. Back when the SPAC merger was proposed, the expectation was that they would have $439 million in revenue in 2022, booming to $1.45 billion in 2024. Analyst estimates right now are that PTRA will hit only $317 million in 2022, and grow to only $890 million in 2024. The gross margin has failed to improve just yet, that number has actually gotten a little bit worse (as of last quarter, they were selling products at 1% less than what it cost to build them), so they haven’t yet followed through on the projections that they’d be getting more efficient. There’s time, but, probably partly because of supply chain challenges and inflation in materials, they’re not getting better as fast as they thought they would. Their SPAC projections envisioned the company generating free cash flow by 2024, and positive EBITDA by 2023. That’s not at all likely to happen now, the analyst forecasts pin at least two more years of ‘cash burn’ on to that.

In comparison to Lion Electric, which is probably the most similar commercial vehicle “pure play EV” company, with established revenue and some meaningful expansions in production capacity, the valuation is, well, pretty similar — both trade for roughly 4X sales, and still lose quite a lot of money as they improve their margins, with similar gross margins (cost of goods) and operating margins (overhead). Proterra is a little bit more established, Lion Electric is growing quite a bit faster from a much smaller base. I like Proterra’s focus on transit buses and on charging infrastructure for their fleets, I think their odds of building a sustainably profitable business are a little better… but at this point, both are clearly very speculative still. There aren’t many established bus companies who aren’t also major truck manufacturers, but the one that I know of that’s not purely EV-focused, NFI Group, which used to be known as New Flyer (NFI.TO, NFYEF), is also facing some margin pressure recently… but they’re generally profitable still, and trade at more like 0.3X sales. Truck companies that also sell a lot of buses, like Iveco in Europe, can trade way down at 0.1X sales, though leaders like Daimler Truck are up at 0.5X sales.

Truckmakers and busmakers do not commonly trade at premium valuations, at least in recent years, so in some ways it’s a little like comparing hot “story” EV stocks like Tesla with conventional automakers like Ford or GM who also build some EVs — the EV “pure play” versions still trade at very lofty valuations compared to their more diversified peers. Part of that is fair, because the EV companies are growing their top-line sales much more rapidly… but I think a lot of it is still “story,” the eagerness to own the future. I’d take Proterra over Lion Electric right now, because the established production is more meaningful and they are not quite as dependent on yet-to-emerge growth, but it’s pretty close and both remain quite speculative, given that they’ll still be burning cash for at least a couple more years.

They are, however, in much better shape, with much less risk, than all of the non-Tesla makers of regular consumer electric vehicles that I’ve looked at — if only because scaling up a new electric auto company to profitability and getting to 10,000 or 100,000 vehicles sold per year is far more complex and challenging than increasing your electric bus production from 50 units to 100 or 200 units per quarter.

Which brings us to part two of today’s de-tease — Siegel is also teasing a “self-charging” electric vehicle maker, which is essentially the latest iteration of the long-dreamed-of “solar roof” electric car that doesn’t need to be plugged in. The efficiency of solar cells has kept that firmly in the “daydream” category, but there are several EV makers who try to give their cars a little range boost by adding solar panels… is there something far more exciting on the horizon?

Let’s check out the pitch… here’s how that second Green Chip Stocks ad gets started:

“Behold the World’s First Self-Charging Car

“It charges itself… even as you drive it down the highway!

“It could also drive Tesla right into the ground and hand early investors as much as 35,014% in the process…

“A tiny $10 company just beat Elon Musk at his own game…

“It’s created the first car in history that charges itself, even as you drive it down the highway…

“Drawing enough energy from the sun to make charging stations ancient relics.”

And while I didn’t start seeing this ad until recently, it may be that the company has been touted before — he calls it a $10 stock up there at the top of the ad, then later notes that it “still trades for less than $5 a pop.”

What other clues do we get about this company that has supposedly perfected the solar car? From the ad:

“It charges by itself, capturing power from the sun as you drive it down the street. It even charges itself while it’s parked in shaded driveways or alleyways… making those inconvenient charging stations a thing of the past.

“It acts as a giant portable generator for your devices, home, and other vehicles.

“It can make you money because you can share your power with other cars or with your local electric grid… and get paid for it!

“Plus, it’s much more affordable than most electric vehicles on the market — it only costs $30,000 to own.

“In fact, it’s already taking the world by storm with over 16,700 orders…

“And it’s not even out on the streets yet!”

The key is apparently that this company is integrating the solar panels into the car design — with solar cells on the sides and doors as well as on the roof and hood, and with a practical compact-car design that would look at home in pretty much any city.

And he implies that they’re already ready for pretty large-scale production…

“… this little-known car company is already in the process of making 257,000 solar cars JUST in its first round of production…”

Everything in the EV world has to be compared with Tesla, since they’re the company that has captured the public imagination… and the only meaningful EV carmaker that has really achieved ludicrous stock gains and a super-premium valuation, with Elon given credit for jump starting the EV transformation by perhaps a decade or more…. so it’s no surprise that Siegel’s “special report” on this secret stock again highlights how this little company did what Tesla couldn’t… he calls it…

“Elon Musk’s Biggest Regret: The Tiny Car Company Leading the Solar Electric Vehicle Revolution”

So what’s the stock? This is Sono Motors (SEV), which does indeed have a lot of reservations — now more than 20,000 — for its mass-market solar-electric vehicle. Reservations are not at all the same as orders, of course, we’ve seen that from lots of EV companies (reservations and preorders have you put down a deposit, usually something between $100 and $1,000, and when your car is actually ready to be built you can either go through with the order or get your deposit back — in the case of Sono’s Sion car, the minimum “preorder” deposit to get your place in line is €500, and the average deposit they’ve received is about €2,000). The Sion is not yet available for preorder in the US, they’re focusing first on their home markets in Europe (it’s a German company).

The company describes itself as both an EV company and a “solar technology” company, with their solar tech being a polymer-based solar cell that they say is lighter and cheaper than glass photovoltaics and can be integrated with body panels of cars, and which they’ll also sell separately to other partners — particularly to support onboard systems and reduce fuel usage for buses and refrigerated trucks, but also for electric vans and buses to supplement charging and extend their range.

The Sion itself looks like a cool and aggressively practical idea, with solar panels integrated throughout and a simple platform design that should be pretty cheap to make (they plan to use contract manufacturers, not build factories themselves), and they’ve added some features like integrated sharing (to make car sharing in communities easier) and bidirectional charging (so your car could provide a “rescue” charge to another car), but the solar panels are really the key selling point.

And on that solar front, it’s probably still more of a cool story than it is a practical replacement for plug-in charging — the car’s battery provides a range of 305km on a charge, they say in their investor presentations, and the solar panels only add 112km per week to that range. Those are all estimates, of course, since the car doesn’t really exist yet and everyone will have different usage patterns (and amounts of available sunlight), but that wold mean the solar stuff is really a fairly minor bonus for commuters, allowing them to use a little less juice when they plug in every night, not anything like the dreamed-of 1,000-mile range or miraculous “never have to plug in” design.

It’s still cool to see some progress in this area, but adding an average of 10-20 kilometers of range per day because of your solar panels is, one hopes, just the beginning of what will be a slow-moving revolution — it will convince some folks who are really committed to going green, but, by itself, that isn’t enough to convince a US driver with range anxiety to take the plunge with an electric car. Or meaningfully reduce the need for lots of high-speed public charging stations.

The example they use is pretty extreme — they say an average German city driver drives 16km/day, and that the Sion will need “only one charge to drive 1,000km”, while other competing cars would need at last four charges to drive that distance. The car’s battery-provided range is only 200 miles at full charge, so that implies that the always-on solar charging will add enough power, over time, to run the car for about eight weeks without plugging it in (though for the final three or four weeks, the car’s range would always be down below about 50 miles, there’s no “rapid refill” from the solar panels, which would give some people angina).

If the car actually ends up being produced at this price, and with these estimated specifications, it would fit into a nice niche — though that might be as much because it’s cheap as because it’s uniquely capable. The solar panels would give it about the same implied range (for estimated German commuters) as a Tesla Model 3 or a VW ID.3, and at a meaningfully lower net price after incentives (estimated, again, but that would be 25,000 for the Sono Sion, about 33,000 for the VW, and 45,000 for the Tesla). I don’t know how it will compare when it comes to things like build quality or extras or doodads like power seats or fancy interiors, the things that people say they don’t care about but which certainly sway a lot of decisions, since, again, the Sion hasn’t actually been built yet.

They are getting closer, though — they’re now in about year six of development, so they’ve built a few concept cars and done some initial testing, and this year they built a few “series validation” test vehicles, kind of the third generation of concept car, and will move on to “pre-series” cars next year, continue validating their manufacturing plan and testing the vehicles, and hopefully move into full manufacturing mode by late in 2023.

That still sounds a bit optimistic, but they’ve got the contract manufacturer on line (that’s Valmet Automotive), and they’re ordering the assembly robots and working on engineering the final design. They’ve also got a letter of intent from FINN, a car subscription platform in Europe, to buy 12,600 cars in the first five years of production (from 2024-2029) — like the customer pre-orders, that deal is non-binding… and unlike the consumer orders, FINN also didn’t place a down payment. But it’s something.

Sono seems to me to be right on the edge of having enough funding to get through to initial commercial production of their Sion cars — they do get a little bit of revenue from their solar business, but in truth it’s less than a rounding error, so they won’t really have meaningful revenue until they begin selling cars. If that’s in a year, which is the plan but seems a little optimistic, then they may be OK if the cars are going out the door with a positive gross margin (meaning, the cost of materials and the charges from Valmet and suppliers for manufacturing and the delivery costs don’t add up to be more than what customers pay for the cars). That’s just going by the fact that they have about $90 million in cash left, and used either $60 million in cash or $45 million in “net cash,” depending on how charitable you want to be, in the first part of this year. If the first few thousand cars are sold at a loss, as seems more likely, and more surprising costs pop up in the initial setup of Valmet’s factories or the development of their final production model Sion, they might have to raise a large amount of money pretty soon.

They do have options — they have a facility of $150 million equity financing from Berenberg that they say they can tap over the next two years, though that will be equity sold, presumably at fair market prices (which are now very low), and said last quarter that they plan to raise close to that much capital overall in the second half of 2022, and that their cash outflow for the second half of 2022 will also be something like $165 million. So that’s a big pending equity raise, most likely, plus some other capital raises from unnamed sources, and that still means they’re probably coming into 2023, which should be a manufacturing ramp-up year without a lot of revenue, with less cash and significantly more shares outstanding than they have now.

It will be hard to raise a lot of equity capital at what is a very depressed share price, and probably hard to borrow money at reasonable cost unless they get some big-money government help, so I would say that the ideal scenario is a smooth launch of their next text vehicle next summer, and something that gins up more consumer interest that leads to more pre-orders and deposits and then more investor interest, which makes it easier to either borrow money or issue a lot of shares at a higher price. It’s possible, but it looks to me like they’re walking a tightrope — which was fun in 2021, but is not so fun here in 2022.

That’s not exactly shocking or unprecedented for a startup, it’s sort of what Tesla went through early on, a new carmaker has to make promises and build capacity and sign on new partners and raise money for years before they can really prove that the cars are desirable and perform well in the real world and lead to a sustainable business — Sono has the advantage of using a contract manufacturer, which might speed things up if Valmet does well, but it doesn’t seem to have a hyper-promotional guy like Elon Musk at the helm to keep investors excited through the dark years. Elon’s are rare… which is what makes it hard to imagine, as an investor, that there will ever be a “next Tesla” when it comes to an EV stock.

They are really in a key inflection point here — they’re likely to be capital constrained at some point in the next year, they are very close to finishing the engineering and production plan for the Sion, they tell the story well and have gone further than anyone else with the integrated solar panels, assuming those work in real life, and they’ve therefore gotten enough interest to have a theoretical “backlog” of non-binding orders. It’s cool, it’s interesting, I hope it works… but as an investor, it’s pretty terrifying that they might have to raise money sometime soon at $1 a share. Sono went public just about a year ago, when the market was obviously much more exciting, and they raised $150 million at $15 a share and briefly got a “pop” to almost $40, giving the company a $3 billion valuation. Now it’s down to about $1.30 per share, with a market cap of about $110 million… which is not much equity value for a company that probably needs to raise at least another $150 million in equity just to get the business started. They’ve made some progress, but it’s pretty hard to buy in when they’re at this depressed point with more than a year to go before they have real proof of commercial production and viability and customers following through on their Sion orders.

It might work out, mostly because a lot of this cash outflow and the immediate financing need is “up front” payments to get production started, both equipment purchases and commitments made to Valmet as well as staffing up their own design and production and sales staff, and a lot of those will be one-time charges that could pay off over the next ten years as production increases. What the stock price at $1.30 is telling us is, I think, is that investors are pretty wary of the massive dilution that might be coming over the next year to meet those commitments and get the business started. Balance that against the appeal of the story, and of the green energy pitch, and I think it comes up wanting still — I don’t think it’s good enough right now. If you’re interested in the Sono story and in the possible launch of the Sion in a year or so, I would wait until after they’ve raised this $150+ million in new capital that they expect to bring onboard soon — if they get through that, and get into production with a reasonable balance sheet, it might end up being an interesting investment… but buying in in the months before they have to maybe more than double their share count to raise money seems like you’re the sucker here. Maybe everyone realizes that, and that’s why the stock is so low, and the dilution is already “priced in” — but I think there’s a risk that it could get a lot worse over the next 6-9 months before there’s a real fundamental possibility of turning it around. Companies with extremely low share prices that have to raise a lot of money are high-stress situations, so it’s not for the weak of heart.

There you go, then, some EV stories to chew on for your weekend. If I were forced to invest in this space today I’d stick with the low-volume, high-price institutional sales of the bus and truck companies — and on that front, I think Proterra is a little more appealing than Lion Electric in the North American transit bus space. Cities are fairly committed to substantial spending on cleaning up their mass transit fleets, and some early leadership in that space could serve Proterra well… even if they are facing some clear speedbumps in the business as their production remains well below their production capacity.

I haven’t bought any of these stocks, and am not likely to in the near future, but I will keep an eye out to see if Proterra or Lion Electric fall to more appealing valuations as they continue to be behind schedule on their revenue and margin improvement efforts — at this point, I’m penciling in Proterra as worth a look if we reach the $4-4.30 range, with a valuation under a billion dollars, and I’m writing a note to myself to look in on Sono next summer to see how the balance sheet looks and whether they’ve got any updates from the road testing of their first 15-20 pre-production vehicles. Lion Electric has more potential for a sexy growth surge in the near term, since they’re ramping up quickly with their new Joliet facility, and it might be that their electric school bus niche ends up being powerful, but I’m a little more cautious there, partly because both Thomas (owned by Daimler) and Blue Bird (BLBD), who together make up roughly 2/3 of the school bus market, are also investing heavily in electric bus production and already have strong connections to school districts and very efficient production for the non-electric parts of the bus (though in the case of Blue Bird, they also carry a stifling amount of debt).

As usual, no easy answers. If you’ve got a take on the EV stories du jour, please do share with a comment below — and if you’ve got questions or comments about any of this, or about our Real Money Portfolio companies, please chime in as well. Don’t worry, there are no stupid questions, and we don’t bite. Have a great weekend!