- Pod Point under new management
- "Orderly exit" from public charging
The saying goes that it is better to sell shovels during a gold rush than actually dig for gold. Sometimes, though, this strategy backfires.
Investors around the world are searching for ways to profit from the transition to electric vehicles (EVs), which promises to be lucrative. Charging infrastructure originally looked like a safe bet. While carmakers are highly exposed to consumer spending, government U-turns and supply chain hold-ups, there is obvious unfulfilled demand for charging units. No one can dig for gold without a shovel, and no one can drive an EV without plugging it in first.
Despite the convincing narrative around them, however, listed charging companies have made terrible investments so far. US pure plays Blink Charging (US:BLNK) and ChargePoint (US: CHPT) have both lost 70 per cent of their value this year, while shares in the UK's Pod Point (PODP) have fallen by 90 per cent since its IPO in November 2021. The latter’s market cap sits at just £33mn today.
Pod Point is a useful reminder that investing in the Next Big Thing is not always a good idea. The group was ahead of the curve when it started making chargers in 2009 and has a network of more than 200,000 connectable devices, making it the UK's leading charge point provider. More than a decade down the line, however, profits are still a pipe dream, and in November 2022 it warned that losses would be deeper than expected. Founder Erik Fairbairn has since stepped down as chief executive and David Surtees has retired from his role as finance chief.
Is there a way back from here?
External challenges
The transition to EVs has been lumpy, and this has had a direct impact on Pod Point. Growth at the company slowed “markedly” in the second half of 2022 due to supply chain problems among car manufacturers. A scheme started by the Office for Zero Emission Vehicles, which allowed customers to claim £350 off the cost of installing a charger, has also ended and group sales have now spun into reverse, with revenue falling by 26 per cent to £30.6mn in the first half of 2023. Home instalments were particularly badly hit.
Since then, the government has pushed back the ban on the sale of petrol and diesel vehicles from 2030 to 2035. “Those headlines are not helpful,” said CFO David Wolffe. “For the press, it’s a great story line to complain about EVs and the lack of charging infrastructure. We continue to urge the government to be more vocal and supportive.”
Long-term structural growth opportunities – no matter how striking – do not guarantee an easy ride, it seems. Some analysts have learnt this the hard way. Back in May, for example, Peel Hunt posted a ‘buy’ recommendation, predicting that there would be a eventual requirement for between 3.5mn and 8mn charge points versus the current estimated 400,000.
“This implies a Pod Point addressable market compound annual growth rate of 40 per cent at the mid-point of these estimates,” the broker confidently concluded. So far, however, the obvious need for chargers is not translating into sales growth – let alone profitability – and the broker downgraded the stock to a ‘hold’ two months later.
Internal issues
Investing in young companies in new sectors also comes with execution risks. Wolffe said Pod Point did an "incredible job of leading the way in the UK charging network” but said it needed to specialise earlier. “The challenge of being expert in all areas becomes almost too great for anyone…. Pod Point has probably left it a bit later than it should have done to pick its battles.”
The group now plans to focus purely on home and workplace charging, as opposed to rapid charging in car parks and petrol stations, which are being targeted by the likes of BP Pulse.
“You are competing for sites with other parties, and the retailers and site owners know that and competition is putting rents up,” said Wolffe. “It's an intensive use of capital, so in terms of shareholder returns it’s a bit more challenging.”
Costs are also a problem. “Running a business that for many years was private, and which only recently came into public ownership, means some of the performance disciplines have not been as embedded as you'd see in other public companies,” said Wolffe. “That has led to some of the cost challenges that have built up which we are now fixing”
An “orderly exit” from public charging will strip out some costs, and management also plans to reduce headcount and find gross margin efficiencies. Even with all these measures, however, Pod Point only expects to break even on an adjusted Ebitda basis in 2026.
It still feels like very early days, therefore, to try to pick an EV charging winner. Pod Point shareholders could get a boost, though, if the company – with its impressive scale and trusted brand – gets snapped up by a larger, better capitalised player.
