Top Takeaways:
- XCHG files for Nasdaq listing, reporting 46% YoY revenue growth in first nine months of last year
- Founded by former Tesla engineers, aims to differentiate with fast-charging stations feeding unused power back into the grid
Little-known fast-charging station maker XCHG Ltd. is hosting a Nasdaq IPO that might seem modest, with an expected market value of under $100 million. But don’t be fooled by appearances—the offering might just exceed expectations, fueled by the company’s solid prospects and an underwriting team that includes Deutsche Bank, and China-focused powerhouses Huatai Securities and Tiger Brokers.
XCHG’s electric vehicle (EV) chargers tap into a global energy storage solutions market projected to hit $90 billion by 2026. The fastest-growing segment is DC fast chargers, set to surge 33% annually from 4.0 TWh in 2021 to 52.0 TWh in 2030. XCHG stands as the second-largest seller of DC fast chargers in Europe, in a market that’s acknowledged as fragmented and ultracompetitive.
Alongside behemoth Tesla with its 50,000-plus “Superchargers,” other significant players include China’s NaaS Technology, EVgo, and Blink Charging. Both Blink Charging and EVgo currently trade at price-to-sales (P/S) ratios of around 1.6, estimating XCHG’s market value at approximately $60 million based on projected revenue for this year.
While XCHG claims global leadership, its unit sales remain modest, with a recent surge in DC fast-charger sales mounting from 807 in 2021 to 1,934 in 2022 and reaching 1,443 in the first nine months of last year. The company touts having sold over 40,000 chargers worldwide since its inception nearly a decade ago.
The company saw a notable 46% revenue spike, reaching $28 million in the first nine months of last year from $19.2 million in the corresponding period a year earlier. The firm’s gross margin has shown steady improvement, visibly climbing from 35.2% in 2021 to 44.2% in the first nine months of last year. However, operating expenses tripled from $6.3 million to $18.4 million over the same timeframe, mainly due to pre-IPO share-based compensations totaling $7.5 million. This led to XCHG swinging into the red with a net loss of $6.7 million in the first nine months of 2023, reversing a net profit of $700,000 in the previous year.
XCHG’s product lines include the C6EU, a smart DC charger boasting a 200 kW output, and the C7 Ultra-Fast chargers with a maximum output of 400 kW, as well as the newer Net Zero Series with an output power of 210 kW. One stand-out feature of XCHG’s Net Zero Series is its capability to return surplus power to the grid—potentially a selling point for buyers keen on lowering operational costs.
Shifting Away from Tesla
XCHG, crafted in 2015 by former Tesla project managers Hou Yifei and Ding Rui, initially targeted China’s robust push for new energy vehicles (NEVs) through various government incentives. Identifying the scarcity of charging stations when China’s NEV surge began around 2009, Yifei, who led Tesla’s public charging stations, and Rui, left to enhance those chargers with cloud-based management software. By 2018, they had deployed 20,000 charging points in China, largely in Beijing and Shenzhen, in contrast to China’s total of 321,000 public charge points by the end of 2017.
As XCHG set its sights on the emerging European market, it opened an office in Hamburg, securing strong government backing akin to China. Its European business, which has begun to outpace its China revenues, saw a 120% YoY surge to $18.2 million in 2022, overshadowing China’s $4.2 million and $6.9 million from other regions. Shell Ventures bolstered its European arm, participating in its series B and C funding rounds in 2021 and 2023.
What’s on the cards for this IPO? Seeking Alpha analyst Donovan Jones flagged it for waning revenue growth, erratic operational results, and untested Net Zero Series products despite their potential to feed unused power back to the grid. Indeed, the Net Zero Series could redefine the game for XCHG, especially if charging station operators warm up to its cost-cutting prowess as one of the few companies crafting such “battery to grid” chargers.
In 2023, XCHG earmarked funds from its latest funding round to establish a charger factory in the U.S. for the Net Zero Series, launched in Texas last August. The firm outlined intentions to allocate 50% of IPO proceeds to the Texas facility, with 20% heading towards R&D, 20% to global market expansion, and the remaining 10% to working capital.
XCHG’s focus on the rapidly expanding European market, rather than the slower U.S. development, appears judicious. In 2021, Europe tallied 45,000 installed chargers versus North America’s 23,100. The European charger count is expected to grow 83.6% annually between 2022 and 2026, just ahead of the 81.5% forecast for North America, translating to an installed volume of 910,000 chargers in Europe by 2026, well ahead of the 544,200 in North America.
The market flaunts immense potential for those capable of engineering popular chargers to fuel the impending generation of NEVs. Now, XCHG simply needs to rev up its business and demonstrate leadership in the domain.
This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
