eResearch | Last month, XL Fleet, a provider of vehicle electrification solutions, announced plans to go public through a merger with Pivotal Investment Corporation II (NYSE: PIC), a special purpose acquisition company.
The combined company will operate under the name XL Fleet, and is expected to trade on the New York Stock Exchange (“NYSE”) under the ticker symbol, “XL”.
The deal is expected to raise $350 million in cash proceeds at closing, including a $150 million upsized, fully committed private placement of common shares at $10.00 per share. The pro forma implied an enterprise value of the combined entity to be approximately $1 billion.
All existing shareholders of XL, including Constellation Technology Ventures, will retain 100% of their equity positions.
The merger is expected to close by the end of this year.
XL Fleet
Across the U.S. and Canada, XL provides electrification solutions for commercial fleets through its proprietary electrified drive systems. XL’s technologies were developed to be easily integrated with a wide range of vehicle classes and types.
FIGURE 1: XL Electrified Fleet Vehicles
XL’s electrification powertrain platform enables fossil fuel-powered vehicles to be transformed into hybrid and plug-in hybrid electric vehicles (“EV”).
The powertrain platform is currently compatible with nine vehicle models from original equipment manufacturers (“OEM”) including Chevrolet, Ford (NYSE: F), Isuzu Motors (TYO: 7202), and General Motors (NYSE: GM).
FIGURE 2: XL Powertrain Platform
The OEMs send incomplete vehicles to XL for the installation of the power train platform. Once installed, the vehicles are upfitted with a body and sent to the end customer.
XL expects to provide three types of offerings for varying levels of electrification by 2022:
- XLhybrid – improves gas economy by up to 25%.
- XLplug-in – improves gas economy by up to 50%.
- XLelectric – zero emissions (launching 2022).
XL’s production capacity can potentially scale up to more than 100,000 units annually, with a capital efficient operating model to drive profitability.
XL also offers real-time data monitoring and analytics services through XLlink, in addition to an Electrification-as-a-Service (“EaaS”) offering through XLgrid. EaaS provides power management, charging infrastructure, and onsite power and storage offerings.
Customers
XL has a diverse customer base of over 200 commercial businesses, municipalities, and universities, which include FedEx (NYSE: FDX), Coca-Cola Co (NYSE: KO), PepsiCo (NASDAQ: PEP), Verizon (NYSE: VZ), the City of Boston, the Seattle Fire Department, Yale University, and Harvard University.
FIGURE 3: XL Customer Base
In North America, XL’s customers currently have 3,200 electrification systems in operation, which recorded over 130 million miles driven to date. XL expects to deploy more than 4,000 systems by the end of this year, with over 10,000 systems expected to be deployed by the end of 2021.
Financials
In 2019, XL generated revenue of $7 million, forecasted to grow 192% to $21 million by the end of this year. XL had negative gross margins of 12% in 2019, which is expected to improve to positive gross margins of 12% by the end of this year.
Last year, XL reported an EBITDA Loss of $13 million with an EBITDA margin of negative 182%. XL expects to be EBITDA positive by 2022 with an EBITDA of $31 million and an EBITDA margin of 11%.
XL’s sales pipeline is growing rapidly with $220 million in contracts for the next 12 months.
Competitors
In the vehicle electrification market, XL competes with Hyliion Holdings (NYSE: HYLN), Workhorse Group (NASDAQ: WKHS), Nikola (NASDAQ: NKLA), and Lordstown Motors.
XL currently leads the market in projected sales for this year by a significant margin, which is expected to widen next year as XL projects to reach over 10,000 units sold. In comparison, Workhorse will be in second place next year with 2,800 units sold.
CHART 1: Vehicle Electrification Market – Projected Cumulative Units Sold
On an enterprise valuations basis, XL forecasted EV/Revenue for 2023 and 2024 at 1.7x and 0.8x, respectively. Based on analysts’ consensus estimate for competitors in the EV industry, XL is expected to trade at a significantly lower multiple compared to most competitors.
CHART 2: Enterprise Value Ratios Market Comparison
Fleet Electrification Market
Almost all fleet vehicles today are currently powered by fossil fuel, which provides a significant opportunity for EV manufacturers. However, at the current pace of EV adoption in the global vehicle fleet market, it will take decades to transition all of the vehicles (see chart 3).
XL is a solution that quickens the pace of EV adoption as it leverages partnerships with OEMs and serves a diverse customer base of large commercial businesses. XL’s customer base currently operates over 1 million commercial vehicles globally that could potentially be transitioned into EVs.
CHART 3: EV Share of Global Vehicle Fleet by Segment
According to Fortune Business Insights, the global vehicle electrification market was $28 billion in 2018 and is expected to potentially reach $53 billion by 2026, growing at a CAGR of 8.5%.
