Is Phoenix Motor Inc. IPO a Good Investment?

• A culmination of economic and geopolitical flashpoints has resulted in multi-decade highs in fuel costs, thus forcing renewed attention toward electric vehicles (EVs).
• The upcoming new listing of Phoenix Motor could be intriguing for investors as the company specializes in retrofitting electric drivetrains in combustion fleet vehicles.
• Though Phoenix ties in with the incredibly EV sector, prospective buyers should realize that electrification is not a panacea for the nuanced complexities of the day.

With the national average price for a gallon of gasoline hitting $4.92 as of June 7, 2022 per data from AAA, Americans — indeed, much of the world’s citizenry — are asking the same question: why did they not buy an electric vehicle when they had the chance? The inquiry is even more pronounced for commercial fleet vehicle operators, where higher gasoline and diesel costs are forcing budgetary concerns.

But such extraordinary challenges have historically allowed private enterprises to rise to the occasion, and, in this case, Phoenix Motor Inc. may have a viable solution. Tied to the commercial EV space, Phoenix specializes in retrofitting existing combustion-powered commercial vehicles with electric drive systems, enabling operators to benefit from the cost savings of electrification while preventing a complete fleet overhaul.

Indeed, one of the less-appreciated facts about society’s response to climate change is that about 12 to 15 million vehicles reach their end of usable life each year in the U.S. Presumably, the vast majority of these non-operating transportation platforms end up in junkyards, imposing their own negative environmental impact. With Phoenix’s solution, fleet operators can extend the timeline of utility while facilitating cost savings.

On paper and for the environment, Phoenix Motor seems like a win-win. However, every market has its unique set of pros and cons — and the EV sector is no different. Before plunking your hard-earned money down on Phoenix’s new listing, consider these key factors.

What Does Phoenix Motor do?

Based in Anaheim, California, Phoenix Motor — which operates under the brand Phoenix Motorcars — specializes in the design, assembly and integration of electric drivetrains. In addition, the company markets and sells EV charging systems for the commercial and residential sectors. Primarily, the company converts light and medium-duty vehicles into electric-powered units, thereby contributing to the broader EV rollout.

According to the company’s website, Phoenix’s all-electric drive system enables conversion of any body or application that has been built on the Ford Motor Co. (NYSE: F) E Series platform. In addition, Phoenix also manufactures its own commercial EVs based off the Ford E-450 Superduty chassis. Currently, it offers the ZEUS 400 Shuttle Bus, ZEUS 500 Truck and ZEUS 600 School Bus.

Below are the key advantages that Phoenix Motor offers.

• Integration: Because of the catastrophic rise of inflation, the purchasing power of the U.S. dollar declined by 11.3% between April 2020 and April 2022, preventing fleet operators from replacing their combustion-powered commercial vehicles with electric alternatives. Therefore, the retrofitting of electric drivetrains is both a cost saver and likely an economic necessity for many businesses.
• Diversification: While the manufacturing and integration of Phoenix’s electric drive systems is arguably the main attraction for its upcoming new listing, the company offers a diversified business through its EV charging systems. Since more households will be contemplating a switch to electrification, charging systems may experience a boost in demand.
• Reliability: Based off its website, Phoenix claims an accumulation of over 3 million electric miles for their products, which is an encouraging sign. Since commercial vehicles can often rack up hundreds of miles daily, interested fleet operators must have some reassurances of reliability.

Finally, the process is noninvasive, meaning that fleet operators will not receive back a Pimp My Ride monstrosity after dropping off the keys. The vehicles will look just like what they remember, only electrified.

When is the Phoenix Motor IPO Date?

Phoenix Motor’s initial public offering (IPO) — or the first time a private enterprise distributes its equity shares to retail investors — is scheduled for June 8, 2022. A spinoff from SPI Energy (NASDAQ: SPI), a renewable and green energy solutions provider, Phoenix has the benefit of limited competition. With very few companies scheduled to enter the IPO calendar for the week beginning June 6, 2022, the EV specialist has the potential ability to attract the lion’s share of investor attention.

Specifically, Phoenix has announced that it will distribute 2.5 million shares at a price range between $7 and $9. Previously, the original terms called for selling 4 million shares at $4 to $5 per each. At the midpoint of the latest deal, the company would raise $20 million. Shares will list on the Nasdaq exchange under the ticker symbol PEV. Maxim Group, Roth Capital and EF Hutton represent the joint bookrunners for the IPO.

Presumably, Phoenix will enjoy outside catalysts that could help draw positive sentiment for PEV stock. First, the combination of economic disruption and Russia’s invasion of Ukraine provides a bedrock of cynicism by which the company can rise from the ashes. Supply chain disruptions associated with the COVID-19 pandemic has crimped inventory of critical goods, contributing to escalating prices. Further, the Ukraine crisis has essentially shelved large volumes of global oil, thus spiking fuel costs.

While the electrification of transportation infrastructures has its own fiscal challenges, both retail consumers and the broader business community are much more eager to consider making the transition, in a similar manner to how water bottles command a premium in scorching desert. Therefore, just on current and implied relevance alone, PEV stock could make a serious impact.

On the other hand, investors must realize that Phoenix is not a slam-dunk opportunity. Although EVs have always been an exciting sector, commercial EV-focused companies like Workhorse Group Inc. (NASDAQ: WKHS) and Lordstown Motors Corp. (NASDAQ: RIDE) have not had great performances so far this year. Indeed, their print has been downright ugly.

What Analysts are Saying About Phoenix Motor IPO

As a relatively small enterprise, Phoenix Motor has yet to attract opinions from major Wall Street analysts. However, the basis for its bullish case is easy to recognize. Obviously, the crisis in Ukraine sparked a paradigm shift in the acceleration of renewable energy initiatives, according to the Yale School of the Environment. Naturally, EVs play an important role in the gradual weening off dependencies from unreliable partners like Russia.

But even without the geopolitical conflict, crude oil prices are likely to rise. How so? In the early spring of 2020, the oil market suffered a catastrophic collapse as international demand was effectively cut as government agencies implemented shelter-in-place measures to combat COVID-19. Therefore, many oil producers are gun shy about fully opening the spigot of black gold, understanding that brewing global recession fears could threaten economic stability once again.

As well, inflation has skyrocketed primarily from the unprecedented expansion of the real M2 money stock — a dynamic which saw both the Trump and Biden administrations play strong contributing roles. Morally, then, American consumers are not necessarily in a position to complain, particularly as their demand for stimulus checks is one of the top catalyst for the current inflationary cycle.

However, EVs may allow households and businesses to have their cake and eat it too, enabling movement of people and goods at a far lower cost than combustion vehicles. So, what can go wrong?

Plenty. For one thing, the inflationary fuel that has drawn increasing attention to EVs is also ironically the factor that can stymie the rollout of electrification. While much has been made about the rising cost of new and used combustion cars, the average transaction price for a new EV has climbed above $60,000. That might not be sustainable for individuals or fleet operators.

Though Phoenix’s integration component might draw in new revenue-making opportunities, the problem is that commercial fleets are beholden to the health of the wider economy. Should it enter a downturn as many analysts fear, Phoenix could quickly find itself back in the fire.

Phoenix Motor Financial History

Under the hood, the company has a history of struggling to generate profits. In 2019 and 2020, the company averaged revenue of $4.06 million. However, in both years, the cost of revenue exceeded actual sales, resulting in negative gross profit. Add in other expenses, and net income for the two years averaged a loss of $4.7 million.

However, the good news is that Phoenix has some strengths in the balance sheet. Total assets amount to $15.4 million, whereas total liabilities were $5.2 million as of the year ended Dec. 31, 2021. As well, the company has long-term borrowings of $756,000 against a cash and equivalents holding of nearly $2.7 million.

Phoenix Motor Potential

Ultimately, EV stocks are popular with retail investors so it's quite possible that PEV could enjoy significant optimism in the early innings. Moving forward, though, the picture gets tricky. Beyond the challenging economics of the EV sector, the lithium production critical to EV batteries imposes a negative environmental impact, meaning that electrification is not a catch-all solution.

Where to Buy Phoenix Motor IPO Stock

If you want to participate in Phoenix Motor’s IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

Phoenix Motor Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

Phoenix Motor Pre-IPO

No pre-IPO opportunity is available though investors can open an account with Freedom Finance for participation in future new listings.

Disclosure: The author owns F stock.