On March 15, Lion Electric announced that it would be building a battery manufacturing plant and innovation center at a still-to-be-determined location in the province of Quebec. Lion Electric is expected to merge with Northern Genesis (NYSE:NGA), a special purpose acquisition company (SPAC). The news sent NGA stock up by double digits.
While it gave a chunk of that back, NGA stock is still trading a smidge higher than it was a month ago.
The press conference seemed to suggest this battery plant would be a game-changer for Lion Electric and the electric vehicle (EV) business in Canada. Heck, the Canadian federal government and the Quebec provincial government have put up more than $39.7 million to support the plan.
Lion’s kicking in $67.6 million of its own to open the plant by early 2023, just two years from now.
It all sounds too good to be true. On the other hand, Canada seems to be pushing hard for electrification, so maybe it’s the real deal.
Assuming everything’s on the level and a plant actually gets built, is this a sign you should invest your hard-earned capital in NGA stock?
I think it is. Here’s why.
What Is the Plant’s Output?
According to the press release, the plant will have a yearly production capacity of five gigawatt-hours in battery storage.
While I’m fascinated by the electrification of transportation, I’m the last person you would want to fix your car. When it comes to mechanical stuff, I’m all thumbs, but I do understand numbers. According to Lion Electric, the yearly production translates to electrifying as many as 14,000 medium and heavy-duty vehicles per year.
In December, as part of the merger details with Northern Genesis, Lion said that it already has 300 vehicles on the road, another 650 deliveries of its all-electric buses and trucks on tap for 2021, another 6,000 potential sales in the future and the potential to produce 20,000 per year by 2024.
The school bus focus is pure genius. As school boards get inundated with ESG demands to be more environmentally conscious, Lion’s product could be the solution to a growing problem.
I say “could” because we all know there are no guarantees in life.
Why Did Governments Chip In?
To have a seat at the table without having to do anything else except cut a check.
Quebec’s Economy Minister, Pierre Fitzgibbon, said that $12 million of the loan could be forgiven if it maintains a certain number of Quebec jobs. The remaining $27 million would be repaid over 15 years, and the interest rate is fixed and very low.
Can I get one of those?
The Canadian federal government’s loan could be entirely forgiven if certain conditions are met. Most likely, the conditions are similar in nature to the Quebec government’s stipulations.
Now, I’m no genius but were Lion Electric to get anywhere close to the $3.8 billion projection for 2024 sales; Lion Electric will repay its loans long before the bill collectors get called in.
You’d have to be an idiot not to take the money.
What About NGA Stock?
I see all kinds of valuations by InvestorPlace contributors when it comes to EV manufacturers. Most of them are incredibly generous.
However, for Lion Electric, InvestorPlace’s Mark Hake suggested in late January that the enterprise value of NGA stock was very rich at about $4.34 billion.
That works out to 6.1 times earnings before interest, taxes, depreciation and amortization (EBITDA) compared to the forecasted $10 million in EBITDA on $1.69 billion in revenue of Lordstown Motors (NASDAQ:RIDE), which my colleague believes is one year ahead of Lion in terms of profitability.
I’m not so sure.
Hindenburg Research suggests that Lordstown is a mirage full of fake orders raising funds to stay in the game.
“Despite claims that Lordstown will be producing vehicles by September, a former employee explained how the company is experiencing delays and making ‘drastic’ design modifications, putting them an estimated 3-4 years away from production. For example, in mid-January the company ‘totally switched from a plastic exterior to aluminum,’ we were told,” Hindenburg’s March 12 report stated.
As far as I know, Lion Electric is the real deal.
It managed to get two levels of government to pony up nearly $80 million for a battery plant. How much government money has Lordstown secured? I couldn’t tell you, but what I know is that the Securities and Exchange Commission has launched an investigation into Lordstown due to the Hindenberg report.
Oh, and let’s not forget that Amazon (NASDAQ:AMZN) has an agreement with Lion Electric that’s not dissimilar to the one it has with Plug Power (NASDAQ:PLUG).
The agreement gives it warrants to buy 15.8% of Lion Electric stock based on the number of trucks it actually buys. To get all of the warrants — exercisable at $5.66 per share — it must spend $1.1 billion.
What’s Lordstown got?
Downplay the recent battery plant announcement at your own peril. It’s a game-changer.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
