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Last year was brutal for growth stocks in general, as investors seemed to find comfort in companies with cash in hand or the potential for free cash flow in the short term. Analysts are second guessing the Fed, and expectations of further interest rate increases will continue to discourage allocations towards growth strategies. Alongside the higher discount rates applied to long term future cash flow, investors fear that insufficient cash positions in not yet profitable companies heightens risk as they may be unable to raise equity or debt in current markets. Moreover, the lack of clarity on operating margins and how long inflation will put pressure on costs has turned many investors towards the fossil fuel industry’s extraordinary profits.
Criticisms of ESG and greenwashing added fuel to the fire (no pun intended). A striking illustration of the risk off 2022 market was the performance of Cathie Wood’s Ark Invest funds. After gaining global recognition for their sole focus on innovation strategies that yielded enviable triple digit returns until 2020, Cathie’s ARKK ETF turned very red, and her flagship fund closed 2022 down 67%.
Ark’s key tech holdings fell out of favor either because they were seen as pandemic- and lockdown-induced beneficiaries, or simply overvalued. Cathie’s strong conviction portfolio company Zoom was down 63% last year, Shopify was down 74%, Teladoc Health was down 75%, Block was down more than 60% and Tesla was down about 70% in 2022.
However, those who believe Tesla will sell 20 million EV units by 2030, that it will develop a fleet of fully autonomous robo taxis, and will become a key global player in the distributed energy space, think its current market capitalization of sub $390 billion is a bargain.
I share Cathie Wood’s conviction on the transformative powers of energy storage. She likes to say that “technology solves problems,” and batteries are the key innovation enabling the replacement of many dated, expensive and high emission products. From EVs that displace internal combustion engines, to long duration clean energy storage that solves the problem of renewable energy intermittency, batteries have already proven to be a powerful solution – mobile to stationary use.
It is therefore hard to reconcile the dramatic drawdowns in 2022 for some incredible companies in this space with all the growth prospects of this transformative technology.
Tesla is not the only name that has the potential to disrupt fossil fuel business as usual. Below are some key companies with very relevant and impactful climate solutions, in segments like electric micro mobility, vehicles to grid (V2G), commercial electric transportation, virtual power plants (VPPs), virtual transmission lines, and long duration energy storage (LDES) that will see revenue accelerating in 2023.
These names are not part of Ark Invest’s universe (not yet, anyway). We believe these five companies, among many others, are undervalued and have solid long-term prospects. These firms benefit from tailwinds across the planet – from the Inflation Reduction Act in the U.S., to REPowerEU in Europe, and China’s infrastructure plans focusing on renewable energy. The companies have proven technologies, capable management teams, a path to profitability and are therefore solid green growth names looking deeply discounted.
1. Gogoro Inc (GGR, down 67.8% in 2022)
A profitable company with a solid moat, wrapping recurring service fees on an efficient manufacturing capability, Gogoro is one of the most exciting names in micro mobility. Based in Taiwan, it develops urban electric two wheelers – mopeds, motorcycles and scooters – and is well known for its battery swapping Gogoro Energy Network.
CEO and co-founder Horace Luke founded the company in 2011, after many years at Microsoft and at HTC where he was CIO, having started his career at Nike. Gogoro’s products were engineered for change and designed for high UX. Luke believes that “Consumers are what’s going to change the world, not necessarily industries or governments. They’re voting with their own money, their own habits—that is what’s going to change how people use energy in the world.”
Gogoro’s battery swapping walls are a clever way to remove the concerns that users of electric two wheelers may have on battery range and logistics of charging. Earlier in the year, the company surpassed 500,000 monthly battery swapping subscribers in Taiwan. Currently, almost all of Gogoro’s 2022 full year revenue was derived in the Taiwanese market. This geographical concentration will change as the company is fast expanding in other Asian countries (India, South Korea and Indonesia) and in Israel, with China as a key target market.
Gogoro’s shares have also suffered from the geopolitical tension between Taiwan and China, and the end of Covid-related disruptions in China. The concern of many analysts is with competition and profit margins given that most of Gogoro’s current revenue (ca. 70%) comes from manufacturing. The company closed the year at a market cap of $875 million, and management reiterated total revenue guidance for the year of between $370 and $390 million, a TTM P/S of 2.2x. Cash position at the end of 3Q22 was $249 million, increased by a $345 million syndicated credit facility (that also retired a previous $182 million old credit loan). Gogoro reported adjusted EBITDA of $9.2 million in 3Q22, down from $15.2 million in 3Q21.
2. Stem Inc (STEM, down 52.8% in 2022)
This San Francisco-based leader in intelligent clean energy storage solutions offers hardware installation that it sources from OEMs, wrapped in a software platform called Athena that operates, optimizes and monetizes energy storage systems. Its original focus was on the Behind the Meter (BTM) market but in 2019 Stem entered into the Front of the Meter (FTM) segment. At the end of 2021 the company acquired Also Energy Holdings, enhancing its solar software management offerings as Also Energy had 32.5 GW of solar assets under management in over 50 countries, ca $50 million in revenue and 60% gross margins.
Stem’s 3Q22 revenue reached $99.5 million ($207.5 million YTD), its 12 month pipeline was $7.2 billion (compared to $5.6 billion at the end of 2Q22), while contracted backlog was $817 million at end 3Q22. The company ended 3Q22 with $294 million in cash & short-term investments, and its long-term convertible notes were $447.4 million. Management expects to reach positive adjusted EBITDA in the second half of 2023 and reiterated revenue guidance for 2022 of between $350 to $425 million. Stem closed the year at a market cap of $1.48 billion, trading at TTM P/S of 5.7x (but potentially below 2x on a forward P/S).
The Inflation Reduction Act (IRA) will give further impetus to revenue growth, adding to the already robust 150% 3Q22 over 3Q21 top line increase. Markets seem to question the price paid for Also Energy, dislike the debt raised to partially finance its acquisition and the fact that the company is not yet profitable. But there is not a scenario where renewable energy intermittency is not solved, and Stem has a solid position in the clean energy storage space and could see a rally in price if it demonstrates acceleration of growth with solid operating margins after one or two quarters of IRA impact (around summer 2023).
3. Fluence Energy Inc (FLNC, down 51.8% in 2022)
This joint venture between U.S. IPP AES and Siemens is a recognized leader in Front of the Meter (FTM) clean energy storage system integration. Earlier in the year, its shares dropped over 30% shortly after the company declared force majeure for three of its utility scale clean energy storage projects, as Covid related supply chain disruptions in China precluded the required batteries from being delivered to the projects on time.
A few months later, a change in management took place, with former AES project developer Julian Nebreda becoming the company’s new CEO. At year end, Fluence announced it will start to develop Fluence-made battery packs in the U.S., with production expected to start at the beginning of 2024. The strategy will allow Fluence to benefit from IRA incentives (of $10/kWh), while increasing control of its supply chain, improving reliability of supply of battery modules and battery management systems.
Fluence reported 4Q22 results on December 16 for the FY ending in September. For the fiscal year, Fluence deployed a cumulative 1.8 GW of energy storage systems, doubling the total deployment reached in the previous year (0.9 GW as of September 2021). Total revenue reached ca. $1.2 billion, an increase of 76.1% over the previous fiscal year (U.S. based revenue represented over one third of the total, at $468.4 million – a 24.3% increase over the previous year). Cash, restricted cash, and ST investments were $530 million at fiscal year end. Management guidance for revenue next year is between $1.4 to $1.7 billion, a forward P/S of 1.6x on a market capitalization of $2.8 billion. Despite having a solid pipeline of contracted projects, strong cash position, and IRA-fueled U.S. growth, the reversal of current negative operating margins is likely necessary for the company to demonstrate a path to profitability.
4. Wallbox (WBX, down 78.1% in 2022)
The Spanish EV charging specialist closed the year at a market capitalization of $583 million, after going public via a SPAC in June 2021 that valued the company at $1.5 billion. Iberdrola is the largest institutional investor in the company, which was founded in 2015 by two former Tesla employees (Enric Asunción and Eduard Castañeda). Management expects 2022 revenue to reach $167 million, more than double the revenue of the previous year, and reiterates a revenue forecast for 2023 of ca. $400 million. Gross margin in 3Q22 was above 41%. On the corporate side, the company’s clients include Uber, Amazon, Ford, Fisker, Pepsi and Walmart. Concerns over its cash position in light of its fast global expansion seem to have negatively impacted its share price, despite the company’s strategy of becoming a direct beneficiary of the extraordinary growth prospects for EVs.
5. Proterra (PTRA, down 57.3% in 2022)
California-based Proterra’s mission is to enable the electrification of commercial vehicles, from medium to heavy duty trucks and buses. The company is a supplier of batteries, vertically integrating the batteries into electric buses that it manufactures, and is a service provider of Vehicle to Grid (V2G) software and management solutions. It has produced over 750 MWh of batteries, installed more than 90 MW of charging infrastructure, and has delivered ca. 950 electric buses. LG Energy Solutions has been a partner on the battery side since 2016.
Electric commercial vehicles are a prime beneficiary of the IRA bill that puts in place a battery manufacturing tax credit of $35/kWh for cells and $10/kWh for U.S. produced modules; commercial vehicle tax credits of up to $40k/vehicle for class 4 to 8 types; and $1 billion in rebates for class 6 or 7 vehicles. For U.S. electric school and electric transit buses, there is $7 billion in funding already approved between 2022 and 2026. At a year-end market cap of $850 million, the company trades at a P/S of ca. 2.6x when annualizing the 3Q22 revenue of $96.2 million and first three quarters revenue of $229.4 million. Loss from operations in the nine months ended in September added to $147 million, and the company had $409 million of cash & cash equivalents at end 3Q22. Management needs to demonstrate in 2023 that the IRA tail winds will translate into profitability.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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