Pioneer Power Solutions: The Electrification of Everything

Pioneer Power Solutions is not alone in the portable DCFC market but a few key differentiators should help e-Boost maintain strong market share and revenue growth:

• Pioneer’s solutions offer faster charging speeds than almost all the competition at 90kW-180kW, where most others max out at 50kW. With almost every EV (whether commercial or personal) putting a premium on minimising downtime, this creates a material competitive advantage.

• In fleet, agricultural, and other rural use cases, Pioneer’s unique propane-powered solutions will be much easier to integrate into existing workflows, particularly among customers more focused on simple integration and low cost versus maximising environmental benefits. Propane deliveries are common all over the world, and much more cost-effective than new grid-tied infrastructure in many cases.

• The main competitor for portable DCFCs are batteries. However, the big downside to batteries is that each unit has to be transported back to grid connection to be recharged after it is drained. This is not cost efficient and importantly requires access to a grid connection. This make’s Pioneer’s product much more efficient to integrate into a customer’s operations.

The company’s market cap is $45m (Jan 25) with the company sitting on $33m of net cash. Therefore the market is assigning an implied valuation of just $12m for the ongoing operations (which is now entirely e-Boost).

Revenue Forecasts: e-Boost reported $2.79m of revenue in Q3’23 which grew by c.130% yoy to $6.42m in Q3 24. Management expects $21-23m of revenue in 2024 from continuing operations which suggests $8.9m in Q4 24 for e-Boost. Moving forward, management forecast $27-29m of revenue for 2025 which at the mid point is $7m per quarter (which is conservative given it represents a slowdown vs Q4 24).

Valuation vs Comps: On these forecasts the company trades on just a 0.4x sales multiple. Peers such as Cummins and Generac have similar asset turnover (c.1x) and gross margin profiles (24%/37% vs Pioneer’s c.25%) yet trade on c.1.4x/2.1x sales respectively.

ARR Multiple: Another way to look at the valuation is to value the annual recurring revenue (ARR). Management have guided $27-29m of total revenue in 2025. $2.5m of this is guided to come from longer-term lease/rental agreements which is ARR. Management target this number to be $4m+ by the end of 2026.

This would put the company on just a c.3x ARR multiple for the end of next year despite ARR making up only c.10% of total revenue.

12 US states now plan to ban sales of gas-powered cars after 2035. General Motors expects to have completed a full transition to electric vehicle sales by 2035. Some smaller automakers have announced even more ambitious timeframes. In Europe, both the EU both and UK have approved a full ban on gas-powered cars beginning in 2035.

However, EVs make up a growing market share of not just passenger vehicles, but transportation, agricultural, construction, and other industries that won’t be able to resist the efficiency benefits of electric power. Existing customers include electric buses & trucks that need to charge quickly, and seaports that receive shipments of EVs which arrive “dead” and need to be charged to be driven to their respective destination. However, as the ‘Electrification of Everything’ takes hold then there is a potentially unlimited number of customer applications.

As a result a conservative estimate for the expected annual growth of the EV market is over 10% between 2025 and 2029 (2 footnote). By 2030, EV adoption alone is expected to drive a substantial increase in electricity demand, adding between 100TWh and 185TWh annually to the current electricity consumption levels. To put this into perspective this is c.5% of the entire electricity demand in the US in 2024.

However, EV adoption is accelerating faster than the infrastructure of chargers and as a result there are many use cases where there is no fast-charging unit available. This, in a nutshell, is the opportunity which Pioneer Power Solutions is taking advantage of.

A recent study (J.D Power) found that 19% of all EV owners have found themselves unable to charge their vehicles at charging stations due to damaged or out of service chargers or excessively long wait times. There continues to be a mismatch in the demand-supply dynamic between EVs and their infrastructure, especially outside of urban areas.

• Guidance upgrade. The company forecasts $27-29m of revenue in 2025 which equates to $7m per quarter. This represents a slowdown from the expected revenue in Q4’24 of c.$8.9m. If this strong growth trajectory continues then management’s guidance for full year revenue could be upgraded.

• Acquisitions. In terms of strategic transactions, while there is nothing imminent, the company plans to be opportunistic with any acquisitions that it might pursue. The company is looking primarily for sizeable businesses with at least $25 million in revenue that are indeed complementary to their current E-Boost platform and would be immediately accretive to earnings.

• An acceleration of government and state EV mandates. 12 US states have joined the UK and EU in currently plan to ban the sale of gas-powered personal cars by 2035. Despite Trump rolling back the Federal targets in the US more states are likely to sign up to the pact which would further increase the growth rate of EVs in the US. In the UK the government is considering bringing forward the ban date from 2035 to 2030. Any government mandates on commercial and industrial vehicles would likely accelerate growth for the company and act as a catalyst for the shares.

• Patents approval. The company has filed several patents focusing on innovative solutions in the DCFC stations space. Notably the system which integrates propane tanks, a generator, and an EV charger to provide mobile and high-capacity charging for electric vehicles. These patents were filed in March 2022 and are currently ‘pending’. Management remains confident that the patents will be approved eventually but do not have visibility over the timeline. Announcement on any patent approval would likely be a positive catalyst on the shares.

• Launch of e-Boost Home product. The company plans on launching their Home E-Boost product in early 2025 through targeted regional distributors and dealers. This product is their first solution focused on the residential and smaller commercial markets. Home E-Boost addresses the resiliency needs of millions of homeowners across the US during adverse climate events, which are now too common and frequent and simultaneously addresses the growing need for EV charging at home, especially fast charging and especially during power outages. This product line also includes a fast-charging option that can address the emerging demand for small businesses, mini-mall segment of the market, retail centres, that can utilise the same solution to meet their business uptime needs and additionally provide EV charging to their customers.

  
  This product therefore opens up a completely new customer base and will likely contribute to top line growth in Q1 25. There is no revenue guidance for this product but given the FY25 total revenue target of $27-29m implies no growth form the Q4’24 run-rate then a successful launch of this product could result in a FY25 revenue guidance upgrade.

• Turning profitable. e-Boost generated positive operating profit for the first time in Q3 24. If 2025 revenue guidance of $27-29m is hit then management expect to profitable next year. This will firstly, and most importantly, expand the universe of institutional investors who will be allowed to invest in the stock. Secondly it will then be easier for investors to compare valuation metrics vs its peer group and therefore to more accurately value the company.

Although the supply chain is likely to remain complex for the foreseeable future the company is taking proactive measures to ensure operational resilience. The company has established strong relationships with multiple suppliers to diversify its sourcing and reduce dependency on single sources. Additionally, the company has increased inventory levels for critical components to buffer against potential delays. The company has also invested in forecasting and planning systems to enhance the company's ability to anticipate and respond to supply chain disruptions effectively. These strategies have enabled the company to maintain production schedules and meet customer demands despite the challenging supply chain landscape.

Given the strong growth in e-Boost the company does need to add capacity on 2025. There are no plans to expand the current manufacturing capacity in Champlain or to take any more facilities. The company has been working with a couple of subcontractors to expand capacity to meet the demand. The company has a subcontractors in South Carolina, West California, Washington and Oregon which is relieving a significant amount of pressure. The company is looking for partners in the Eastern part of United States.

The US, UK and EU all until recently mandated personal vehicles car production to be 100% EV by 2035. However, Donald Trump confirmed during his inauguration that he would be rolling back this mandate. This could lead to less EVs on the road which would reduce demand for Pioneer Power Solutions e-Boost products. However, individual States can still target it and also as EV targets are rolled back it is likely that plans to improve EV infrastructure will also be scaled back. Therefore the gap between EV's on the road and availability of EV infrastructure isn't likely to close which should continue to drive strong demand for the company's products.