Electric vehicle (EV) stocks have been on fire over the past year as multiple companies have come to market; and everything from charging network operators to start-up manufacturers are getting multibillion-dollar valuations. One market that hasn't received much attention is the bus and industrial vehicle market.
One of the industry leaders in the commercial bus and vehicle market is Proterra Inc (PTRA), which went public via SPAC (special purpose acquisition company) merger earlier this year. The company is still relatively small and isn't yet profitable, but it can sell itself with dollars and cents savings to customers and that could drive tremendous growth for a decade or more.
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The good and bad of Proterra's finances
Proterra recently announced its second-quarter 2021 financial results and they were admittedly mixed. Revenue was up 39% to $58.5 million but the net loss was $189.0 million, partly because of a $129.8 million loss "related to the change of fair value of liabilities primarily associated with [their] convertible debt."
While Proterra is growing, it's also struggling to make money on the busses and other products it's selling in the market. Gross profit was just $1.3 million, a measly 1% of sales, which isn't sustainable long-term.
Revenue growth is strong but bottom-line results are weak. So, how does Proterra turn that around?
The case for Proterra's business long-term
One of the bullish cases for Proterra is that the company should see lower costs long-term, but it won't necessarily see its sale prices to customers fall at the same rate. Traditionally, battery costs have come down rapidly over time and a battery cell supply agreement with LG Energy Solutions to supply cells at "competitive prices" should help lower manufacturing costs over time.
When selling buses and other industrial vehicles, not all of those savings need to be passed on to customers. An electric bus, for example, just needs to be lower cost than its diesel or natural gas alternatives to be compelling to a buyer. Once that threshold of cost savings is passed, any cost reductions in Proterra's manufacturing should disproportionately be kept by Proterra, barring price competition with other bus manufacturers. At least, that's the bullish case for the stock.
Proterra is also trying to grow its own addressable market. The company started as a commercial bus manufacturer, but now it's supplying battery systems, EV components, controls, and even drivetrains to manufacturing partners. This could allow the company to enter markets from EV buses to garbage trucks and excavators, over time.
Falling costs along with improved performance and reliability should enable Proterra to grow revenue and expand margins over time.
Biden's infrastructure bill is a boost to Proterra
A huge tailwind for Proterra could come from the infrastructure bill making its way through Congress. In April, Proterra's management said the plan would help achieve electrification targets of 100,000 school buses, 50,000 transit vehicles, and 500,000 EV chargers.
For perspective on how these numbers compare to Proterra's current operations, the company delivered 54 electric transit buses and battery systems for 30 vehicles in the second quarter of 2021. Demand has lots of room to run over the next decade, boosted by the infrastructure bill.
Why Proterra is an EV stock to buy today
Unlike the consumer EV market, there are fewer competitors in electric buses and other industrial vehicles, at least for now. That could give Proterra a leg up on the competition in the same way Tesla beat larger, more established passenger vehicles to market and continues to gain market share. Management has put its total addressable market at $260 billion, and that spans a wide range of potential growth markets.
Proterra isn't without risk given its low margins today and the relatively slow uptake of electrification in the commercial vehicle market. But as EVs gain steam in commercial markets I think this will be one company with a tailwind at its back, and that could be a huge win for investors.
