What is Cenntro Electric Group?
Cenntro Electric Group Ltd (NASDAQ: CENN) is a commercial EV technology company that designs and manufactures electric light and medium-duty commercial vehicles. The company specializes in the production and sale of EVs, including the Logistar 100 (LS 100), Logistar 260 (LS 260) and Logistar 400 (LS 400).
The LS 100 is a versatile, compact, light cargo van, purpose-built to serve diverse commercial applications, especially in urban areas with high population density.
The LS 260 is a new addition to the Logistar series. This new vehicle will target various applications in the trades, couriers, express and parcel services, logistics solutions, and facility management segments. It has initial deliveries to Europe scheduled in September.
The LS 400 is designed for urban delivery and services covering last-mile delivery and vocational fleets.
Cenntro Electric Group serves clients in the United States. To date, it has delivered over 3,600 electric vehicles and traveled over 20 million miles. The company has had 238 patents granted and been certified in 32 countries. Cenntro has now shipped to 16 countries and has six assembly plants.
The company's electric commercial vehicles (ECVs) are designed to serve a variety of corporate and governmental organizations. Its business model allows the firm to design, manufacture, assemble, approve and sell to third parties for distribution and service to end-users and also distribute manufactured vehicle kits, which are then assembled, approved, sold and serviced by third parties in their respective markets.
The firm operates through the following brands: Cenntro, Metro, Neibor, Logistar, and Terramak.
Cenntro Electric Group was founded on May 11, 2017, and is headquartered in Freehold, New Jersey. It was previously known as Cenntro Automotive Group.
At the end of 2021, Cenntro was acquired by Naked Brand Group Ltd (NASDAQ: NAKD), an intimate apparel and swimwear company.
How Does Cenntro Electric Group Make Money?
Cenntro Electric Group makes money primarily by selling ECVs to its channel partners. Historically, these revenues were generated solely by the sale of the Metro®, but it recently began generating income from the sales of the Logistar™ 200 in Europe.
Net revenues this year have been generated from vehicle sales, sales of ECV spare parts related to its Metro® vehicles, and the sale of ECV batteries to certain customers, plus charges on services provided to channel partners for technical developments and assistance with vehicle homologation (approval) or certification.
However, Cenntro is not profitable, and its net loss of -$23.05m in the first half of 2022 has dramatically widened from a -$4.5m loss in the first half of 2021.
First Half 2022
Net Revenue: $5m (up 105% Y/Y)
Number of Vehicles Sold: 337 units (up 23% Y/Y)
Cash and Equivalents: $183m (up from $2m Y/Y)
Net Loss: -$23.05m (risen from -$4.5m Y/Y)
Peter Wang, CEO of Cenntro, said:
During the first half of 2022, we continued to execute on our strategic initiatives and grow our topline despite a challenging macroeconomic environment.
We sold 132 units of our newly launched Logistar 200 (the “LS 200”) model, which doubled our average selling price. This demonstrates our capabilities for executing our tiered product strategy while addressing various customer demands amidst global uncertainty,
Wang went on to list recent progress, including Cenntro's introduction of three new EV products, the Logistar 100 (LS 100), Logistar 260 (LS 260) for the European market and Logistar 400 (LS 400) for the North American market.
We have already begun receiving pre-orders for these new products. These new vehicles come with higher price points and will continue to improve our product mix.
With inflation hitting battery costs and global supply chain challenges persisting, Cenntro set up Cennatic Power Inc. to produce advanced lithium-ion batteries for its ECVs. The company hopes this production and manufacturing unit will help secure and stabilize its battery supply. In time, this should enable the company to expedite the development of ECVs, reduce supply chain dependency on China, and lower battery cell costs.
The company has also started new vehicle assembly in the US and Europe and built its EV distribution and services infrastructure.
Cenntro Electric Group Growth Potential
The company hopes its recent initiatives will help accelerate its growth strategy. It believes this expanded product line-up and leading technology will position it well to capture tremendous growth opportunities in transforming the global commercial fleet industry to zero-emission vehicles.
Edmond Cheng, Chief Financial Officer, added,
Increased vehicle sales and improved product mix helped us achieve 105% year-over-year revenue growth for the first six months of 2022. These results reflect our continuous investment in product development and partnership with the right OEMs to enhance our product offerings to meet market demand.
We have also stepped up our investment in sales and marketing, infrastructure, and research & development to support our growth objectives. However, in light of the uncertain macroeconomic environment, we will remain cautious in managing our expenditures and working capital in order to preserve a strong balance sheet.
The company believes scaling will improve profit margins in the long term. The company expects its cost of materials and parts, including battery packs, to decrease as its vehicle production volume increases. This should reduce the average cost per vehicle with time.
CENN Stock Risks
In the short term, certain components and materials may increase in price due to shortages of battery packs, semiconductors and other input parts.
Supply chain shortages have hit Cenntro's production capabilities. Thus, its operating results in the first half of 2022 have been significantly impacted by the scarcity, and the company expects this will continue.
The price of battery packs has increased and may continue to grow in the near term due to the rising cost of lithium because of COVID-19 and other factors.
A prolonged economic downturn could reduce demand for last-mile delivery. This could have a knock-on effect in reducing the need for Cenntro's ECVs.
Competition is rife in the EV space, and only the strongest will survive.
The company plans to ramp up spending to meet its growth strategy.
Is CENN Stock a Good Investment?
Cenntro stock is one of many EV companies operating in a tight space. It currently has a $337m market cap, customer base, and multiple patents. However, it's hard to take the company seriously when it went public via a lingerie company.
Naked Brands left investors with a bad taste after its plummeting share price led to the unlikely merger. At the time, the company guided for at least 20,000 vehicle deliveries in 2022. This seems unlikely, given it's delivered 3,600 to date.
Year-to-date, CENN stock is down by -76.11% while the S&P 500 is down -18.01% over the same period. And over the past month, CENN stock is down by -21.34%.
CENN stock has a price-to-book-value (P/BV) of 1.3, and does not offer a shareholder dividend.
All-in-all, CENN stock is a highly speculative and risky investment. Therefore investors should be vigilant.