$CENN Cenntro Automotive EV disruption with Hydrogen powered Class 8 Semi Tractor
Global Intel Hub -- Charlotte, NC -- 12/26/2022 -- They've finally done it - Cenntro Auto $CENN has launched a Hydrogen powered Class 8 Tractor, and it will be displayed at the infamous Consumer Electronics Show on Jan 6th in Las Vegas. We released leaked intel they were going to do this and then they officially announced it. It will be available in Q3 2023, let's dig into why this is a game changer for $CENN stock and the EV industry as well. In case you haven't heard of the company, Cenntro Auto is an Electric Vehicle manufacturer that is making EVs in USA and EU. They have operations in New Jersey, and are expanding near Jacksonville, Florida. Let's dive in to this disruptive EV maker.
First of all, where $CENN is trading now it's a great bargain - there is no reason that this company should be trading so low - and it's not all hype. Cenntro is a company that has produced 3,000 + vehicles, and is rapidly expanding in the US and EU. This is not a case of investing in a company with a deck and an idea - they are building cars and car parts, and now trucks - and shipping them. The EV truck market is huge so this isn't a competitive analysis type of situation, there could be multiple companies making Class 8 Tractors and we could still see growth in the Class 8 market. Let's look at how big the US market is, from Statista:
This statistic represents U.S. Class 8 truck sales between 2007 and 2020, by brand. In 2020, Daimler's Freightliner division sold more than 71,770 Class 8 trucks. With a 37.4 percent U.S. Class 8 truck market share, Freightliner is also the market leader in the United States. The Class 8 truck gross vehicle weight rating is anything above 33,000 pounds.
In 2019, before the Pandemic, more than 250,000 Class 8 trucks were sold in the US, in total. Although that number has slowed, there are still nearly 200,000 sales in 2020 which was a slow year. The market is divided among 6 major players, who are all competing for supremacy. However, all 6 players have strong sales, this is not a winner take all market. What will put Cenntro in the lead here is the EV component of their truck. Although many have tried, there is no Monopoly on the EV market for this class of truck, so all new participants have an equal starting point.
Let's take a look at Cenntro Auto by the numbers, from their website:
That means 6 factories (and they are opening more), 3,600 vehicles actually sold and shipped, 238 patents, and have shipped to 16 countries. Patents are important in a space like this, and 238 is a decent, respectable portfolio.
Problems with the traditional sector
Although it's now not hard to imagine EV companies disrupting the traditional car business (because of the path Tesla blazed), we should look at some problems with the traditional business, which will make it easier for new players to jump in. For example, Freightliner is the largest in the pack, now owned by Daimler. They have been plagued with controversy, due to safety issues. In 2019 they had 28 recalls, 18 complaints, and 3 investigations by the NHTSA.
As of December 2020, Freightliner is under a court order to improve safety, and was fined $30 million by the NHTSA after an investigation found that Freightliner had failed to recall dozens of known safety defects in its vehicles. In 2019 alone Freightliner was forced to issue safety recalls 24 separate times by the NHTSA, and there have been over 100 recalls total on its flagship truck, the Cascadia. The Judge found that Freightliner had no system in place to track faults, and ordered $5 million of the fine be applied to upgrading outdated paper-based systems and converting to recall software used by other automakers for decades. As of May 2021 Freightliner has at least three open investigations against it for electrical issues, including several fires.
These are serious issues, they aren't small design flaws or cosmetic fixes. Whatever is the cause and solution, these issues are still causing a problem for Freightliner, as recent problems have been reported as early as August of 2022. This is not a problem that was or can be easily solved, and the current labor shortage and supply logistics bottlenecks are making it even worse. If you were in the market for a Class 8 vehicle, and you were looking at Gas vs. EV and read about all these problems, what would you choose?
Fundamentals on the stock price
We feel that, if this positive trend continues (and there's no reason why it shouldn't) this stock should be at least $2 or $3 dollars per share, or more.
The stock is suffering from lack of analyst coverage, although it has received some attention on Seeking Alpha who calls for $1.5/share in ideal scenario:
Let’s keep in mind also that Cenntro Electric appears to be developing autonomous driving capabilities. There are EV manufacturers out there trading at large multiples because of these technologies. We have developed a prototype system-on-chip for vehicle control and an open-platform, programmable chassis, with potential for both programmable and autonomous driving capabilities. Source: Prospectus Under the previous assumptions, I believe that net sales growth close to 50%-30%, 2030 EBITDA margin of 4.5%, and FCF margin of 3.5% make sense. We would be talking, therefore, about a 2030 FCF of almost $8.5 million.
If we include an EV/EBITDA of 25x and a discount of 5%, the net present value of future free cash flow would stand at $207.5 million. Besides, the equity valuation would stand at almost $385 million, and the fair price would be $1.5 per share.
According to FinViz, there are 261m shares outstanding and about 161m float. Insiders own 38%, institutions own about 8%. See more @ CENN / FinViz:
The 52 Week range is .32 - 7.80 so it's now at the all time low. A company making Electric Vehicles is not going to zero or going out of business, one would fairly assume.
From all the peers, Seeking Alpha supports Cenntro more than any other:
Summary of our thesis
Cenntro (CENN) is not a well known EV company and that's exactly why we like this stock. It recently merged with an existing publicly traded company, and that's one reason the stock is depressed (investors don't like the previous company, but they should like Cenntro). Not only does Cenntro have a track record to build and ship EV, they are working on a Class 8 EV truck, one of the most complicated to build.
The company has just announced on December 1st the opening of 6 more EV centers around the world:
- Cenntro Electric Group (NASDAQ:CENN) has launched six EV centers in support of its global distribution system expansion in Spain, Italy, Poland, Turkey, Morocco, and the Dominican Republic.
- Building on its first EV center in Dusseldorf, Germany, the new facilities will serve as hubs for the company's distribution network which will support sales, deliveries, and aftermarket sales. The centers will also provide marketing, technical, logistical, and after-market support for the firm's regional dealers, strategic partners and customers.
The company has been covered on Seeking Alpha positively, we'd like to share just a couple of highlights and a link to the article here:
Cenntro Electric Group Limited (NASDAQ:CENN) operates in the growing electric vehicles (EV) market with a special design that would allow a significant amount of outsourcing. As a result, I believe that the incoming results would bring more free cash flow (FCF) margin than competitors. My discounted cash flow (DCF) models indicated that, with sufficient levels of successful R&D, the upside potential in the CENN stock price could be substantial. Even with certain risks, CENN is a stock to follow carefully.
There is huge demand in the entire EV industry for Class 8 EV Trucks. Cenntro Auto is in the process of releasing that, and they have a track record of success (based on already delivered vehicles - we are saying that actual delivery, is success).
Rivals include Rivian, Workhorse, Nicola, Arrival, Green Power, ELMS, and Mullen. But only Cenntro Auto has certified and ready to sell product. That puts Cenntro front and center (pun intended).
The Class 8 EV Truck
Many have tried and failed, and here's the hope for buying this stock. Not only is it undervalued as is, but if they can pull this off - we can see substantial appreciation from here. The fact that they have already rolled out other products shows they have the engineering, manufacturing, and operational skills to get this out as well.
On December 7 the company issued a press release, talking about the Class 8 vehicle:
will unveil the Logimax H864 (“LMH864”), a hydrogen powered Class 8 Semi Tractor, at the upcoming 2023 Consumer Electronics Show (CES®), taking place January 5-8, 2023 in Las Vegas. The LMH864 is a 6x4 semi-tractor, representing Cenntro’s first entry into hydrogen fuel cells and first heavy-duty truck. The LMH864 has a total weight of 25 tons and is designed for short- and long-haul applications. The semi-tractor’s electric motors are fully powered by high-efficiency sustainable hydrogen fuel cells with eight 210-liter banks that convert hydrogen into electric power by combining it with oxygen, producing only water as byproduct. The LMH864 will be available in 3Q of 2023 and will launch in North America and Europe initially.
Based on this, are stock investors waiting for the unveiling at CES? Obviously, this is a game changer. We feel that due to the confusion over the merger, and because the company is not from North America, this stock is not getting the attention it deserves.
The future of Cenntro
Cenntro is ultimately a Chinese company with a global presence, they have entities in Delaware, Germany, Hong Kong, and China. Obtaining tax incentives from the local government, Cenntro is expanding manufacturing in Jacksonville, FL:
Cenntro Electric Group Ltd. is in review for a $1.15 build-out for its electric vehicle plant in West Jacksonville. ARCO Design/Build is the contractor for a 30,000-square-foot space within Building 100 at 2240 Lane Ave. N. The architect is ADB Design Services of Atlanta. Legacy Engineering Inc. of Jacksonville is the civil engineer. Plans dated Oct. 19 said the improvements include a factory/vehicle assembly area, storage and office space.
So investors should think of Cenntro like any other car maker, they have a global presence. If you buy a BMW in the South, chances are it was built in Spartanburg, SC - yet most people associate BMW with Germany. Cenntro is positioned similar to other car makers, who manufacture close to the clients. Cars made in Florida will be "Made in America" just like BMW, and just like John Cougar Mellencamp.
The total EV market globally is huge, and demand is increasing. Making gas powered cars is hard enough, but making EV is even more challenging. The total global EV market was USD 178.5 billion in 2021 and it's expected to grow rapidly. EV is not only about sustainability, it's about economic sustainability, and not relying on the grid. EV is a real off-grid solution, because an EV can be powered by wind, solar, or any source of electric power. If gas infrastructure is disrupted for any reason, EVs are going to be the only cars on the road. While they do have their limitations, it's obvious why leaders want to transition to EV over the long term. It's not about saving the planet, it's about saving ourselves.
Checkout our Research page dedicated to Cenntro @ https://globalintelhub.com/CENN