By Michael Elkins
BMO Capital initiated coverage of Lion Electric Corp (NYSE:LEV) with a Market Perform rating and a $2.00 price target on the stock.
Analysts wrote in a note, “Lion is a designer, manufacturer, and distributor of commercial electric vehicles. We consider the company to be ahead of several pure-play competitors on R&D expertise, product differentiation, stage of ramp, and unit economics. But we believe these advantages are already reflected in its 2x forward revenue multiple vs. the peer range of 0.5x to 1x. In addition, we believe the cadence for sales and margin to accelerate will take time.”
LEV has declined from $33 in January 2021 to $2. However, Lion has over 10 years of R&D expertise in electric trucks and buses, a purpose-built vehicle design, and proprietary battery systems, and BMO notes that the company's sales and gross profit loss per vehicle are notably better than several pure-play peers.
Gross profit has been negative, largely due to unabsorbed fixed cost from low sales volumes. In 2022, the company delivered 519 units. By the end of 2023, management expects annual capacity to reach 5,000 vehicles. BMO Capital believes the timeline for more meaningful electric truck volumes is still several years away, and that the slow pace of electric truck industry sales is due to most fleet operators still being in a trial phase with this new technology.
BMO Capital also taking a wait-and-see position regarding Lion’s in-house battery pack assembly ramp. The company has several years of experience in this area at small scale. Lion produced its first proprietary lithium-ion battery pack in December 2022 and expects a gradual production ramp throughout 2023. Management is undertaking this initiative to reduce the cost of its vehicles. If successful, vehicles sold in 2024 and onwards may have a notably higher gross margin, which would help offset more ramp costs.
In June 2020, Lion entered into a master purchase agreement with Amazon (NASDAQ:AMZN) Logistics for the purchase of up to 2,500 Lion trucks. As part of the agreement, Lion committed to reserve manufacturing capacity to deliver up to 500 trucks per year from 2021 to 2025 and the greater of 500 trucks per year or 10% of Lion’s manufacturing capacity from 2026 to 2030.
In connection with the master purchase agreement, Lion issued 35.4 million warrants to Amazon. The warrants expire after eight years in June 2028. Until then, they will vest based on vehicle purchases by Amazon along with other requirements that have not been publicly disclosed. Currently, these warrants’ exercise price of $5.66 exceeds Lion’s share price of ~$2.
Shares of LEV are down 5.18% in afternoon trading on Monday.