US Stock IPO Preview | SmartCharge Technology: Delivery growth slows down, profit volatility "roller coaster"

The issue of electric vehicle charging is the "last mile" of promoting electric vehicles. China is the world's largest new energy vehicle market, with a continuous significant increase in the penetration rate and stock of new energy vehicles, driving strong demand for charging piles.

Public data shows that as of the end of June this year, the total number of charging piles nationwide has reached 10.244 million units, a year-on-year increase of 54%; among them, there are 3.122 million public piles and 7.122 million private piles. The total rated power of public piles exceeds 1.1 billion kilowatts, meeting the charging needs of 24 million new energy vehicles.

However, for overseas markets, charging piles, as infrastructure, seem to have not "kept pace". OECD conducted a survey last year, with one-third of respondents in some European countries stating that there are no charging stations within a 3-kilometer radius of their residences.

With more cars than piles, it is good news for businesses revolving around charging. From selling components, hardware, to building and operating charging piles, and even developing third-party platforms to find piles, there are plenty of opportunities in between.

With the support of subsidy policies, major domestic charging pile companies are accelerating their overseas standard certifications to seize the initiative. ZhiChong Technology is one of them. According to Frost & Sullivan, based on sales volume in 2023, ZhiChong Technology is the leading high-power charger supplier in Europe.

After establishing a foothold in overseas markets, ZhiChong Technology is now making a move towards the capital market.

According to information from Zhitong Finance APP, ZhiChong Technology, which secretly submitted its IPO documents to the SEC as early as June 2, 2023, has recently updated its prospectus and plans to list on Nasdaq with the stock code "XCH".

The prospectus shows that ZhiChong Technology plans to issue 3.15 million shares at a price of $6 to $8 per share, with a fundraising range between $18.9 million and $25.2 million.

Profitability Roller Coaster

Established in 2015 and headquartered in Beijing, ZhiChong Technology is a supplier of electric vehicle charging equipment and energy solutions, mainly providing comprehensive electric vehicle charging solutions, including the DC fast chargers named C6 series and C7 series, as well as the advanced battery-integrated DC fast chargers called "Net Zero Series (NZS)" and their corresponding services. As of the date of the prospectus, the company has started commercial deployments of the NZS solutions in Europe, the Americas, and Asia, with customers including electric vehicle manufacturers, global energy companies, and charging point operators.

ZhiChong Technology's business spans globally, with offices, R&D centers, and sales centers in Europe, the Americas, and Asia. Currently, the company mainly deploys solutions in Europe, while also confirming revenue from the United States, China, Brazil, Chile, and other regions. In addition, the company plans to build a production factory in the United States, expected to start production operation by the end of 2024 to further enhance its global layout.

In terms of performance, benefiting from the rapid growth in demand for charging piles in overseas markets, ZhiChong Technology has achieved a continuous increase in revenue. From 2021 to 2023, the company's revenue was approximately $13.156 million, $29.424 million, and $38.512 million, respectively, with a year-on-year growth of 30.9% As of the first three months of 2024, the company's revenue was approximately RMB 11.152 million, a year-on-year increase of 51%.

In terms of revenue sources, the income from charger products is the main source of revenue, with approximately RMB 12.5 million, RMB 28.7 million, RMB 38.1 million, and RMB 10.7 million respectively during the period, accounting for 95.3%, 97.7%, 98.8%, and 96.3% of the total revenue for the same period. Following that is service revenue, which contributes a small proportion of revenue, less than 5% of the total revenue.

Unlike the steady growth in revenue, the profitability of SmartCharge Technology resembles a roller coaster, with a loss again in 2023. From 2022 to the first three months of 2024 (hereinafter referred to as the "reporting period"), the company's net profit was approximately -RMB 2.067 million, RMB 1.61 million, -RMB 8.084 million, and RMB 0.733 million respectively.

Behind the "roller coaster" profitability lies a significant increase in expenses.

During the reporting period, the company's total expenses were approximately RMB 6.594 million, RMB 9.077 million, RMB 24.519 million, and RMB 4.777 million, accounting for approximately 50.1%, 30.9%, 63.7%, and 42.8% of total revenue. Total expenses surged in 2023, mainly due to the growth in general and administrative expenses.

Specifically, general and administrative expenses were approximately RMB 2.46 million, RMB 2.745 million, RMB 14.025 million, and RMB 1.66 million, accounting for approximately 18.7%, 9.3%, 36.4%, and 14.9% of total revenue. In 2023, SmartCharge Technology's general and administrative expenses increased by 410.9%, leading to a substantial increase in the company's expense side. The prospectus indicates that the significant increase in these expenses from 2022 to 2023 was mainly due to the increase in equity compensation and professional fees related to restructuring, financing, and the current issuance, which cannot be capitalized.

It is worth noting that the net cash flow from operating activities of the company was almost consistently negative. It was approximately -RMB 6.479 million, RMB 0.849 million, -RMB 5.576 million, and -RMB 4.036 million during the reporting period, indicating that the company's main business is in a continuous state of "bleeding".

The demand for fast charging brings imagination space, and the channel still relies on large customers

Fast recharging has always been a demand of electric vehicle owners, both domestically and internationally. In addition to residential and workplace locations, scenarios such as highways, shopping mall parking lots, etc., all require fast charging facilities However, there is a significant disparity in the number of AC and DC charging piles in the European and American markets, with only 25% of public charging piles in the United States being fast-charging DC piles, and even fewer in Europe at only 10%.

With a clear demand and ample policy subsidies, the market growth of fast-charging DC piles is foreseeable. Soochow Securities Co., Ltd. estimates that by 2025, the market space for DC piles in Europe could reach 18.7 billion yuan, with a compound annual growth rate of 76% from 2022 to 2025, and the market space for DC piles in the United States is 7.9 billion yuan, with a compound annual growth rate of 112% from 2022 to 2025. According to the prospectus of ZEEKR, the installation volume of global DC fast charging stations is expected to increase significantly from 2.7 million units in 2024 to approximately 10.7 million units in 2028, with a compound annual growth rate of 41.8%.

On the manufacturing side, the overseas charging pile product line is almost identical to that in China, focusing on AC slow-charging piles and DC fast-charging piles. ZEEKR's ability to establish a foothold in the European and American markets is closely related to its NZS charger.

In terms of competitive landscape, ZEEKR is one of the earliest companies dedicated to the research and development of battery-integrated energy storage chargers. In April 2022, the company successfully launched the independently developed product NZS charger, one of the few battery-integrated energy storage chargers sold globally to date. Compared to competitors, the NZS charger has outstanding performance such as larger battery capacity, higher charging efficiency, stronger tolerance to extreme environments, and longer lifespan. In addition, the NZS charger is one of the first electric vehicle chargers globally to offer bidirectional charging services. During the reporting period, the company delivered 807, 1934, 1688, and 351 DC fast chargers, showing fluctuating growth.

As a leading player in the market, ZEEKR is expected to continue to benefit; and the company has already commercialized the NZS charger with bidirectional charging system, and will accelerate its expansion into the US market in 2024, which will be a new growth point for ZEEKR's performance.

However, from the customer side, ZEEKR's bargaining power is not particularly strong. The company exhibits a clear dependence on major customers. During the reporting period, revenue from the largest customer accounted for 32%, 63%, 42%, and 47% of total revenue respectively. This customer dependency has led to a continuous increase in accounts receivable, with net accounts receivable of approximately 8.338 million yuan, 15.661 million yuan, and 12.781 million yuan during the same period. The growth in accounts receivable has reduced the cash content of its performance, adversely affecting the company's liquidity In addition, the attitude of European and American countries towards foreign charging pile companies has always cast a shadow over the development of ZhiChong Technology.

In February of this year, the United States required that all subsidized charging piles must be manufactured domestically in the United States. Starting from July 2024, at least 55% of the cost of all components must be produced domestically in the United States. Europe is also advancing the implementation of policies such as the "Critical Raw Materials Act," the "New Battery Act," and "Carbon Tax."

If these policies are implemented one day in the future, how much impact will it have on the development of ZhiChong Technology?

In conclusion, benefiting from the strong demand for charging piles in overseas markets, ZhiChong Technology has achieved rapid revenue growth. However, due to significant cost fluctuations, the company's profitability has been on a roller coaster. With its market size advantage, the company is still expected to continue benefiting from industry growth, especially with the commercialization of NZS charging, which is expected to boost its performance. However, ZhiChong Technology also faces several potential operational challenges, including intensified industry competition, technological upgrades and iterations, protectionist subsidy policies for overseas domestic industry chains, and the need for further validation of NZS mass production