22 Jan Xos: Driving a Path to Profitability in the EV Industry
Xos, Inc. (NASDAQ: XOS) is an electric truck manufacturer and fleet services provider for battery-electric fleets. Xos vehicles and fleet management software are purpose-built for medium- and heavy-duty commercial vehicles that travel on last-mile, back-to-base routes.
Market Cap: $47.41M; Current Share Price: 7.98 USD
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The Company and its Products
Xos is a fleet electrification solutions provider committed to decarbonizing commercial transportation. The Company designs and manufactures Class 5-8 battery-electric commercial vehicles that travel on last-mile, back-to-base routes of up to 200 miles per day.
It also offers charging infrastructure products and services to support electric vehicle fleets. Xos’s proprietary fleet management software integrates vehicle operation and charging to provide commercial fleet operators with a more seamless and cost-efficient vehicle ownership experience than traditional internal combustion engine counterparts.
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Xos started delivering EV Stepvans in 2018 and is committed to making top-tier vehicles for leading fleets. As a leader in step vans and charging infrastructure, the Company enables fleets to transition to EVs. It is among the first publicly traded commercial EV OEMs to deliver positive gross margin units.
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We’ll discuss the critical rationale for covering this Company.
- Regulatory Tailwinds
The Advance Clean Fleets (ACF) rules passed in 2023 by the California Air Resources Board (CARB) require medium-duty fleets, including stepvans, to transition to 100% zero-emission vehicles by 2035.
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Specifically, fourteen other states, California and the District of Columbia, signed a pledge for 30% zero emission fleets by 2030 and 100% by 2050. These regulations are expected to create greater demand for Xos products.
Additionally, several incentives are being provided by the government at the federal, state, and local levels to spur EV transition.
For example, to promote clean energy, electric vehicles, batteries, and energy storage manufacture or purchase, the Inflation Reduction Act of 2022 (IRA) was enacted into law on August 16, 2022. One of IRA’s incentives includes providing consumer tax credits. Specifically, qualifying Xos customers may receive up to $40,000 per vehicle in federal tax credits to purchase qualified electric cars in the U.S. through 2032.
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Several states and certain private enterprises have offered incentive programs to encourage the adoption of alternative fuel vehicles, including tax exemptions, tax credits, exemptions, and special privileges. Notable for Xos customers is the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP), which provides point-of-sale vouchers for certain qualifying ZEVs. Under HVIP, dealers and fleet operators may request vouchers from HVIP on a first-come, first-served basis, up to the funding amount available for that year, to reduce the cost of purchasing hybrid and zero-emission medium- and heavy-duty trucks and buses.
Additionally, several states and municipalities also offer incentive programs to encourage the installation of charging infrastructure for electric vehicles. The magnitude of incentives varies based on individual charging capabilities.
Thus, Xos is set to benefit from government regulations that mandate the transition to zero-emission fleets and the incentives provided for this purpose.
- Lower Cost of Ownership
The Company’s proprietary technology saves fleets money, offering a lower ownership cost than diesel. Most fleets see payback times of <5 years before incentives, increasing the demand for Xos products.
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Potential customers are also reassured by Xos’s competence in manufacturing, quality, and supply chain management.
Manufacturing capabilities
Supply chain resilience
Quality assurance
In other words, there is high demand for Xos products due to benefits such as lower cost of ownership, further bolstered by the Company’s exemplary manufacturing capabilities, supply chain resilience, and supreme quality assurance.
- Financial Performance
Q3 FY23 was Xos’s most profitable quarter to date – the Company achieved GAAP gross margins of 12% in the first full quarter of production of the revised 2023 step van and delivered 105 units, up 175% over Q2 FY23.
Revenues were $16.7 million, compared to $4.8 million in Q2 FY23. GAAP gross margins were 11.9%, and Xos achieved up to 20% gross margins on a per-unit basis.
Net loss was $14.1 million, loss from operations was $12.6 million, and non-GAAP operating loss for the quarter was $11.2 million.
Most importantly, Xos Sustained a build rate of over 700 vehicles per year for over a month, underscoring its ability to deliver high volumes of vehicles without additional capex investments.
For FY22, Xos’s revenues had improved significantly to $36.4 million from $5.0 million for FY21. The Company achieved deliveries of 275 units in 2022 compared to 44 deliveries in 2021, marking an increase of 525%.
For FY23, Xos expects unit deliveries of 250 – 350 units, revenues between $36.3 to $54.7 million, and non-GAAP operating losses between $50.5 and $61 million.
Risks
Xos demonstrated incredible revenue growth over the last quarter and seems to be headed on an upward trajectory. Nevertheless, Xos is subject to certain risks.
Firstly, Xos experiences competition from several companies, particularly as the commercial transportation sector increasingly shifts towards low-emission, zero-tailpipe emission, and carbon-neutral solutions. For example, existing commercial diesel vehicle OEMs, such as Freightliner, Ford, General Motors, Navistar, Paccar, and Volvo/Mack, are shifting their focus to developing zero-tailpipe emissions solutions for customers. Some of these companies have far greater resources than Xos.
Secondly, Xos operates in an industry subject to extensive environmental regulation, which has become more stringent. The laws and regulations to which Xos is subject govern, among others, vehicle emissions and the storage, handling, treatment, transportation, and disposal of hazardous materials and the remediation of environmental contamination. Compliance with such laws and regulations at an international, regional, national, state, and local level is essential to the Company’s ability to continue operations. It may, in turn, affect Xos’s performance.
Conclusion
Xos is an exciting watch due to its outstanding performance over the last quarter, buoyed primarily by its ability to offer lower ownership costs and exceptional quality products. Xos is also set to benefit from several government regulations and incentives that favor fleet transition to EV.
Nevertheless, the Company is subject to risks such as competition from more resourceful companies and may even suffer losses if there are changes in government regulations. Hence, potential investors must proceed with caution.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1819493/000181949323000066/xos-20221231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1819493/000181949323000252/xos-20230930.htm
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