Tritium's Trying Times

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This week we’re taking a look at an Australian company that has become a world leader in manufacturing Electric Vehicle charging stations: Tritium. Their FY23 results caused such a large share price drop that NASDAQ has issued them a warning notice. They once found success by being in the right place at the right time - will that be enough for them now?

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Tritium is a Brisbane-based company that celebrated a deal in May 2021 that gave it a “Double-Unicorn” valuation of USD 2.2 billion prior to its NASDAQ listing in 2022 – at $9.22 per share.

They raised about $390m based on their long-term projections of Revenue CAGR of 20% … for the next 20 years. It’s an impressive prediction but realistic given the need to decarbonise and wean ourselves off fossil fuels for transportation.

Fast forward to October 2023 and NASDAQ issued a noncompliance notice because its share price had dropped below $1 for 30 days. In fact, its share price was last at $1 on 25 August and has since dropped consistently to 22c as of last week.

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Before we look at what’s causing their current problem, let’s look at why Tritium was so valuable back in 2021/22:

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Demand

Tritium makes DC (Direct Current) chargers for Electric Vehicles – specifically commercial chargers. The best way to explain why they expect 20% Revenue CAGR over the next two decades is to look at the technology it will replace:

• Europe and USA each has around 140,000 petrol stations, UK 8,000, Russia 25,000, Australia 7,000, etc – all containing multiple bowsers. Nobody really knows exactly how many bowsers are in use worldwide (it’s sometimes used as one of those “Google-style” interview questions to test your ability to reason), but there are obviously A LOT.
• Electric Vehicle sales are growing rapidly – growing 50% in 2022.
• EV chargers can be installed ANYWHERE: shopping centres, libraries, schools, even at on-street parking.

Tritium was in exactly the right place at the right time. In 2012 Alan Finkel (yes, he later became Australia’s Chief Scientist) from an Californian EV startup asked Tritium to make a DC fast charger. From 2012-2020 EV sales grew 50% every year.

By 2023 Tritium (with around 6,000 chargers) has 30% of the DC fast charger market in the United States, the largest share of any single company. Only Tesla has more chargers (7,000) but almost all of theirs are Tesla-only chargers.

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So why are they in trouble now?

Basically, because their FY23 financial results look atrocious:

• Revenue has grown 115% in FY23 and they made a Net Loss of $121m (roughly the same as FY22’s loss)
• Their Gross Profit is negative, and the margin % has worsened, from FY22: -1.98% to FY23: -2.21%
• They’ve made losses every year since FY21
• Equity is negative (-$143m in FY23)
• So they’re continuing to trade by taking on more debt (Short & Long-Term debt increased by $115m in FY23

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Some comments just don’t age well

In 2021 Tritium’s CEO Jane Hunter said after their $390m pre-IPO deal:

We consider this to be a “fortress balance sheet” for Tritium. It is as much money and more than we need.

Last week she said:

The fundamentals of the business are good, but the only issue we have is we are undercapitalised, and we have been since the time we listed.

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But she was right

Commercial EV Rapid Chargers are a completely new industry, requiring continued R&D and very large amounts of capital investments for companies to grow, and they need to grow to meet demand.

In fact, the chicken and egg nature of Electric Vehicles and Chargers reinforces the need for large investments to get the market to maturity – Range anxiety influences many EV purchase decisions, which drives the need for Rapid Chargers to be installed. The availability of Rapid Chargers increases demand for EV’s.

USA recognises the need to incentive EV Rapid Chargers in order to grow Electric Vehicle use through funding attached to new Green Infrastructure legislation. This is designed to cause a step change in EV usage, and Tritium has once again put itself front and centre of that change – by opening a new factory in Tennessee that can produce 30,000 chargers each year (reference point – its Brisbane factory produces 5,000 chargers annually). Joe Biden popped by in 2022 for the factory announcement.

Industries undergoing rapid technological expansion require capital, and bucketloads of it. They use that capital to refine and expand the market until its accessible to everybody, at which point it replaces legacy tech.

Jane Hunter’s mistake was NOT in expanding Tritium quickly, it was in underestimating how much capital it would need to build the company to a top position in a new market, while the market itself is establishing itself worldwide.

?Of all its competitors, Tesla seems most likely to be able to overtake Tritium. But Tritium has one advantage – to do that Tesla needs to upgrade its existing chargers to be able to charge non-Tesla vehicles (7,000 in the US alone) at the same time it expands its overall charger fleet.

A recapitalised Tritium could steal a march on Tesla, and the other smaller players in the market, to maintain it's dominant position for the next two decades.

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?? Hi, I'm the founder of?Ascern Advisers. We do Strategic & CFO advisory for businesses with Growth Potential. DM me or email me at?[email protected]?if you want to chat.