Process Editor | Xiaobai

XL Fleet's market value once exceeded 3 billion US dollars, which is far from its final equity financing valuation of 73 million US dollars. Recently, the company has carried out a lot of hype around new energy sources, including announcing the development of electric trucks and the layout of a network of charging stations.

Muddy Waters Research (Muddy Waters Research), an established shorting agency that has been dormant for many days, recently made another move.

On March 3, EST, Muddy Waters publicly shorted the SPAC company XL Fleet Corp (XL.N, “Company”, “XL”) listed on the New York Stock Exchange. By the close of the day, the company's stock price had fallen 13.10%. On March 4, the company closed down 13.42% again.

XL is an electrification solutions provider that helps large enterprise customers convert their commercial fuel vehicles to electric vehicles.

With the widespread application of new energy, the company recently said it will lay out a network of charging stations and develop its own brand of electric trucks.

As a result, the company ranked among the “new energy concept stocks” in the US stock market and received a lot of attention from investors. Next, Feng Yunjun explains the key points in the 53-page shorting report on Muddy Waters for the old iron guys.

1. The business is to convert fuel vehicles into electric vehicles

According to the description on XL's official website, the company was founded in 2009. At that time, the new energy electric vehicle market was far from reaching today's success.

At the time, the average price of gasoline in the US was as high as $1.84 per gallon, and the average price of diesel was $2.27. However, there are very few hybrids, plug-in hybrids, and all-electric vehicles on the road.

So the company seized this opportunity and began providing electrification solutions for commercial fleets.

The company's customers are usually commercial transport companies. The company helps customers convert their traditional heavy duty trucks into hybrids or plug-in hybrids while retaining their original fuel power systems.

Common 2-6 class (note: North American commercial truck classification) heavy trucks such as Ford (F.N), Chevron (CVS.N), GMC (GM.N), and Isuzu (7202.T) are all within the scope of the company's modifications.

Customers are of course doing this to save fuel costs while also reducing greenhouse gas emissions.

According to XL's disclosure, MPG (note: fuel economy index, defined as the number of miles traveled per gallon of fuel) will increase by 25% and carbon dioxide emissions will be reduced by 20%; the modified plug-in hybrid truck will increase MPG by 50% and reduce carbon dioxide emissions by 33%.

However, the shorting agency Muddy Waters did not agree with the company's statement.

Muddy Water pointed out in the shorting report that the company lied to customers about energy saving indicators, and customers began to lose a lot after discovering the truth. The company's technology is actually quite backward, and it doesn't have the ability to independently develop charging networks and electric trucks.

Overall, the company creates an illusion for investors that its business is thriving and is in fact losing the market.

2. A large number of customers have been lost

The company told investors that the current backlog of one-year orders is worth as high as 220 million US dollars, indicating its strong market demand.

This data has also become the key to the company's sales forecasting. The company expects revenue to grow to $1.4 billion by 2024.

However, Muddy Water said that the company's sales forecasts are completely unreliable because the company doesn't have that many customers at all, yet it always lies to investors on the customer list disclosure.

The company told investors that it currently has 33 major customers, including Canada Post, DHL, FedEx (FDX.N), Coca Cola (KO.N), Verizon (VZ.N), and PepsiCo (PEP.O).

However, according to the Muddy Waters survey, there are already 18 customers in this batch of customers who are no longer customers of the company; more than half of them have been lost.

Muddy Water believes that the reason the company lost these big customers was that its actual energy efficiency did not meet the level initially promised to customers.

For example, Portland General Electric (POR.N) used to be a customer of the company and modified 13-15 trucks. The company originally promised the customer that the modification would save more than 50% of the cost, but in the end, the customer discovered that it had only achieved savings of less than 10%, so the customer left disappointed.

There are also some customers who haven't left yet but aren't active. Muddy Water believes that buying the company's modification services by these large companies is simply an experiment.

For example, industrial products dealer Ferguson (FERG.L) and Hawaii Electric Power have a large fleet of transportation fleets, but they have only modified 2-3 vehicles.

3. The real return on investment is negative

The company falsely claims that its technology can increase MPG by more than 25%, but customers eventually discover that the rate of increase is usually only 5%-10%.

More than that, customers will also find that their investment in purchasing the company's services to modify the vehicle actually has a negative ROI (return on investment).

Initially, the company would tell potential customers that the ROI of this investment was as high as 55.7% to induce a deal.

However, Muddy Water pointed out that the company overestimated the ROI by exaggerating many key input variables in the ROI calculation, including exaggerating fuel costs, vehicle service life, driver pay, and annual driving mileage.

For example, in calculating ROI, the company assumes that the cost of purchasing a modified kit is 13,000 US dollars, but the actual purchase price is 17,000 US dollars.

The biggest input variable that affects ROI is the price of oil. The company's assumption that the price of oil will remain unchanged at $3 per gallon for a long time to come is obviously also out of touch with reality, and most customers will not adopt this assumption.

Muddy Water adjusted the company's input assumptions according to the actual situation, such as changing the oil price from $3 per gallon to $2 per gallon. As a result, a negative ROI was calculated at -53.1%.

Muddy Water pointed out that many of the company's customers are utility companies, which usually care a lot about fuel costs and can accurately calculate actual expenses and savings. Customers soon discover that this capital investment isn't worth it.

Additionally, the company lost its certification from the California Air Resources Board (CARB) in 2019, meaning the company's potential customers will no longer receive up to thousands of dollars in new energy subsidies.

This will have a huge impact on the company's acquisition of customers in California, yet the company did not disclose this to investors.

4. Does not have technical advantages

Technically speaking, XL isn't an electric car company at all, but it often compares itself to well-known electric truck manufacturers currently on the market.

Comparable companies mentioned by the company include Hyliion (HYLN.N), Workhorse (WKHS.O), Nikola (NKLA.O), and Lordstown (RIDE.O).

Although the company itself does not manufacture cars, based on its modified vehicle data, the company claims to be a “market leader” based on annual sales volume.

The company has always expressed its intention to enter the electric truck sector, although there is still no clear timeline.

But Muddy Water doesn't think the company has the core capability to develop electric vehicles. Muddy Water pointed out that even in its own field of electrification, the company's technology is quite weak. The company currently outsources almost all of its components and relies on third party patents and technology.

The company also said it wants to lay out its own network of charging stations, XL Grid.

Mudwater believes this is also one of the company's hype, and points out that the company also buys ready-made charging components from third-party suppliers, and that it has no key patented technology at all.

Currently, many car manufacturers are entering the field of electric trucks and have achieved results that are clearly ahead of the company.

For example, Brightdrop, a subsidiary of General Motors (GM.N), is producing transport vehicles for FedEx Express, which are scheduled to be delivered this year and will be delivered to other customers in 2022.

Ford is also developing an electric transport vehicle, which will be released in 2022. Production of Ford's electric F-150 is also scheduled to begin in early 2022.

Amazon (AMZN.O) has ordered 10 electric delivery vans from Rivian and has already put them into use.

Once these automakers launch their own brands of electric trucks, the company's traditional market for electrified modifications will also quickly be lost.

epilogue

Overall, Muddy Waters believes the company revolves around fraud and hype about investors.

In the final round of equity financing, the company's valuation at the time was only 73 million US dollars. Since its listing through SAPC in September 2019, the market value has once exceeded 3 billion US dollars.

Muddy Waters called the company “yet another SPAC trash.”