Proterra (ACTC) Is a Leader in the Electric Mobility Sphere but Investors Should Not Write-off Arrival (CIIC) and Lightning eMotors (GIK)
Proterra, the top manufacturer of electric transit buses in North America, is now on the verge of becoming a public entity by merging with the Special Purpose Acquisition Company (SPAC), ArcLight Clean Transition Corp. (NASDAQ:ACTC).
As per the press statement released by Proterra on the 12th of January 2021, the merger with ArcLight Clean Transition is expected to close in the first half of 2021. The combined company is expected to have a pro forma equity value of $2.4 billion. Moreover, Proterra will have access to $648 million in cash, derived from exiting cash balance in trust and $415 million in PIPE investment from institutional investors.
Proterra is a vertically integrated company that offers battery packs and electrification solutions under the banner of Proterra Powered, manufactures electric buses via its Proterra Transit division, and offers charging solutions via Proterra Energy.
In a crucial caveat, Proterra currently enjoys a first-mover advantage in the mass electric sphere, with its buses having already clocked in 16 million cumulative real-world miles. The company’s liquid-cooled battery modules host small cylindrical cells in an energy-dense format, thereby maximizing the lifespan of its battery systems and boosting their flexibility. Moreover, Proterra’s electric drivetrains purportedly offer 5x efficiency and 2x acceleration as compared to those on the conventional diesel buses.
Of course, the financial aspect is one where Proterra truly shines. The company is expected to have earned $193 million in revenue for FY 2020, thereby substantially outpacing all of its competitors, most of whom are currently in the pre-revenue phase. By 2025, Proterra expects to earn over $2.5 billion in revenue. Crucially, Proterra expects to have a positive EBITDA margin by 2023 and positive Free Cash Flow by 2024.
Despite the apex position that Proterra currently commands in the industry, investors should note that the North American bus market is expected to undergo rapid electrification in the near future. By 2025, around 50 percent of new sales will consist of electric buses. In this rapid growth environment, Proterra’s competitors will have ample opportunity to catch up or even exceed its market share. For instance, the British mobility startup Arrival was termed one of the best-positioned electrification plays currently on the market by Wolfe Research last week. Arrival is gearing up to merge with the SPAC CIIG Merger Corp. (NASDAQ:CIIC). The company’s star attraction is its ability to deploy cheap and scalable microfactories in existing warehouses, where the skateboard chassis is assembled from pre-fabricated Aluminum components and body panels that are held together by powerful adhesives. While still in the pre-revenue phase, Arrival has already secured an order of 10,000 electric vans from UPS, with the possibility of this order being doubled to 20,000. Crucially, the company expects to be cash-flow positive in 2023.
Proterra investors should also keep a tab on Lightning eMotors as it prepares to merge with the SPAC GigCapital3 (NYSE:GIK). In early January, the company secured a $45 million order from ABC Companies, consisting of Class 3 Lightning Electric Transit passenger vans, Class 4 Lightning Electric E-450 shuttle buses, Class 5 Lightning Electric F-550 shuttle buses, and Class 7 transit buses. The company certainly has the potential of upstaging Proterra in the electric mass transit sphere.
Given the scale of the global electrification challenge in front of us, the transition will produce a number of winners instead of a single, dominant one. In this competitive environment, investors would do well to employ diversification rather than depositing all of their proverbial eggs in a single basket. So, while Proterra leads currently, it remains to be seen how durable this lead is.