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Is Proterra Stock a Buy?

Electric-vehicle (EV) companies have lately captivated investors' attention. That's understandable, given the bold electrification targets set by governments and major automakers worldwide. While electric cars get the most attention, there are other key transport segments that are moving toward electrification.

Proterra (NASDAQ: PTRA) is focused on technologies and products related to the electrification of commercial vehicles. Here's a look at why the company's stock fell last year and what can be expected in the coming year and beyond.

Proterra's growth so far

California-based Proterra, which went public in June 2021 after merging with special purpose acquisition company (SPAC) ArcLight Clean Transition Corp., focuses on EV technology for commercial vehicles. The company provides battery systems to commercial-vehicle original-equipment manufacturers (OEMs), including makers of delivery trucks, buses, and other commercial vehicles.

It also provides fleet-scale charging solutions and software services. Moreover, Proterra sells electric buses in the U.S. as an OEM. It's sold more than 700 buses so far.

Image source: Getty Images.

The company has three manufacturing facilities in the U.S.:

  1. A battery-production facility and a bus-manufacturing facility in City of Industry, California
  2. A battery-production facility in Burlingame, California
  3. A bus-manufacturing facility in Greenville, South Carolina

Additionally, it announced a new battery factory in South Carolina in December. The company expects to invest $76 million for the factory, which is expected to become operational in the second half of 2022.

In the first nine months of 2021, Proterra delivered 154 buses, up from 122 delivered in the year-ago period. It also delivered battery systems for 134 vehicles, up from systems for 74 vehicles delivered in the first nine months of 2020. Proterra's revenue for the first nine months of 2021 rose to $174 million from $143 million in the year-ago period.

Proterra targets a huge market

Electrification of buses and other commercial vehicles is key to achieve emission-reduction objectives. The bipartisan infrastructure law provides a $5 billion investment for low- or zero-emission buses. Proterra estimates an addressable global commercial-EV market of more than $260 billion.

Bus fleets in the state of California, as well as in some cities, including New York City, Chicago, and Seattle, are required to convert fully to zero-emissions by 2040. Proterra estimates that there are more than 25,000 such buses in operation currently, which present a significant growth opportunity for electric-bus manufacturers.

Proterra not only targets a huge market, but also operates in a segment that enjoys significant government support. All this bodes well for Proterra's growth.

Should you buy Proterra stock now?

Proterra's biggest challenge probably comes from the various big players operating in the commercial-EV space. In the electric-bus segment, the company competes with leading players including NFI Group, Gillig Corporation, Nova Bus Company, and BYD (which, for example, has delivered more than 50,000 electric buses so far.)

Similarly, in the battery segment, Proterra competes with much bigger and more established players such as CATL, as well as newer companies such as Romeo Power and BorgWarner. Further, auto-parts suppliers, such as Cummins, Allison Transmission, and Dana, are also developing electric drivetrains. Overall, the electric commercial-vehicles market is intensely competitive.

Proterra targets revenue of around $2.5 billion and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $500 million for 2025. Based on that, its current stock price implies a price-to-forward sales ratio of roughly 0.8 times, which looks reasonable. The company has a robust order backlog for both its buses and battery systems.

Proterra stock may not return to price levels seen at the start of 2021 any time soon. The exceptional rise in the stock's price at that time came more from a broader euphoria for EV stocks than from Proterra's business fundamentals.

Moreover, the company may not see the kind of rapid growth that EV investors often expect. Proterra will likely be a long-term growth story, suitable only for patient investors.

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Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool owns and recommends BYD. The Motley Fool recommends BorgWarner and Cummins. The Motley Fool has a disclosure policy.


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