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Shell and Volta deal could foreshadow more EV charging consolidation (NYSE:VLTA)
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EV charging upstarts have often positioned themselves as a new guard of energy companies battling against established fossil fuel companies. However, Volta’s (NYSE:VLTA) recent agreement to be taken over by Shell (NYSE:SHEL) may be a sign of a shifting tide as struggling operators seek buyouts from cash-rich oil and gas giants.
“While the EV infrastructure market opportunity is potentially enormous, Volta’s ability to capture it independently, in challenging market conditions and with ongoing capital constraints, was limited,” Volta CEO Vincent Cubbage explained. “This transaction creates value for our shareholders and provides our exceptional employees and other stakeholders a clear path forward.”
Under the terms of the latest deal, Shell provided bridge financing for the company to sustain it until the closing of the deal. As such, Shell paid a paltry premium for Volta (VLTA) at only $0.86/share, a far cry from the stock’s late 2021 peak.
Shortly after the announcement, shares of Evgo (EVGO), Blink Charging (BLNK), and ChargePoint Holdings (CHPT) all dove lower in light of the light takeover premium apparently available. Additionally, significant layoffs at European operator Wallbox (WBX) brought home the struggles the sector continues to face in terms of achieving profitability.
Profit Juxtaposition
In terms of balance sheets and profitability dynamics, the EV charging space’s struggles have been juxtaposed with the surging profitability of oil and gas companies. Just as companies like Wallbox (WBX) tighten belts in an attempt to navigate a more adverse macroeconomic environment and higher interest rates, oil and gas companies like Shell (SHEL), Chevron (CVX), ExxonMobil (XOM), and BP (BP) have notched record profits.
Therefore, cash deals for struggling EV infrastructure appear to make sense to many onlookers. Indeed, a sub-$200M price tag for companies like Volta (VLTA) offer upside with little risk, especially given EV adoption rates.
According to the International Energy Agency, there were only 14K EV charging stations in the US in 2018. By the close of 2022, over 50K charging stations offering hundreds of thousands of fast chargers are in operation, according to the World Economic Forum. Meanwhile, National Petroleum News data indicates that the number of gas stations across the US has steadily decreased over the same period.
PwC estimates that EV charging will be a $100B industry by 2040, as both hardware companies and station operators see surging demand.
“The accelerated expansion of the charging infrastructure will be needed to serve the needs of a new generation of EV owners,” the Big 4 firm’s research stated. “We forecast that the number of EVs in the US will climb a steep hockey-stick trajectory to 27M by 2030 and 92M by 2040. This compares to about 3M EVs in 2022.”
That growth trajectory has made it an attractive space for investment and M&A. According to PwC, more than 20 EV charging startups in the EU and US have been acquired since 2021, with major energy companies among the more active acquirers.
Acquirers Beyond Energy
That said, energy companies are not the only firms likely to be interested in the space.
Indeed, many EV manufacturers operate charging networks to allay fears about the range of vehicles and viability on longer trips. Additionally, major convenience stores like 7-Eleven have invested in fast charging.
“Given the expanding legal obligations (across the UK, EU and elsewhere) for the delivery of charging infrastructure beyond the transport industry to the real estate and construction sectors there will almost certainly be more deals to allow this to happen,” David Haverbeke, Energy and Infrastructure Partner at London-based law firm Fieldfisher LLP, told Seeking Alpha. “Policies/regulations are being reoriented away from a car-first approach, putting grid resilience, charging networks and interoperability ahead of vehicle design and technology, which has surged ahead of infrastructural adaptation. This trend is likely to drive more consolidation.”
He added that not only energy companies, but companies in the utilities, real estate, as well as the construction and infrastructure space, taking advantage of potential bargain prices for struggling operators. Haverbeke also acknowledged that some operators could even be headed for bankruptcy as losses persist.
Read more on EV trends to watch in 2023.
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