July 16, 2021 – On today’s podcast, we welcome special guest Justin Mirro, the President of Kensington Capital Partners and CEO of their SPAC, Kensington Capital Acquisition II. On the podcast, Justin discusses:
- His career that ranged from test driver to engineer to investment banker and now an investor, advisor and SPAC sponsor focused on the automotive space
- The underlying thesis behind the Kensington Capital Acquisition series of SPACs
- Key insights into Kensington’s SPAC merger with Wallbox at a $1.5 billion valuation
- A discussion of Wallbox’s business model, customers and competitors
- And more
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Transcript:
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: Welcome Justin to the podcast. Excited to have you on today to chat about all things Wallbox and Kensington Capital Acquisition. You guys recently announced a business combination, which is obviously super exciting for you, but prior to getting into the underlying business model, and that deal specifically, I wanted to delve a little bit into your background and give our listeners a sense of your track record. Specifically, you are in automotive specialist, from what I can see. A wide-ranging career, found it interesting. Way back in the day, a brief stint as a test driver, then an engineer, investment banker, and now an investor advisor and SPAC sponsor. Focused on the automotive space. Can you walk us through your career background and why you decided to focus on the auto business?
Justin Mirro: Well first of all Julian and Michael, thanks for having me on here. And well, it sounds like you actually gave my whole background there Julian. And so, I’m not sure how much more I can say. But yeah, my whole career. And in fact, my entire team, all of our careers have been in the auto industry. And I did begin my career in the late eighties at Car and Driver Magazine and born and raised in Detroit. I mean, my passion was working on cars and back then working on cars meant building the biggest, most powerful engine we could. Today working on cars means making the most energy efficient powertrain and electrifying anything you can get your hands on. So, you know, just in my short career in the auto industry about three decades, I’ve been able to see this transformation and, you know, I think it’s really that transformation that got our group here, so excited at Kensington.
I mean, I have people on my team at Kensington, people like Donald Runkle, he was the chief engineer on the General Motors EV1. The very first electric vehicle ever produced, a production car. I have guys like, you know, Matthew Simoncini. The former CEO of Lear, $20 billion a year tier one parts supply. That type of people on my team, we’ve never seen this transformation in the auto industry that we’re seeing today in what we view it as the number one mega trend in the auto industry, which is the electrification of the powertrain. And so, to be at this, I guess this intersection of events that are going on globally, which is this electric powertrain coming together. And the fact that the world is now focused on smart energy management in everything, your home, your business, public transportation, you name it, everyone’s talking about these two major trends and they’re coming together.
And we as a team, you know, we have a lot of experience building products, a lot of experience with the OEMs and dealers. We obviously have a lot of with batteries given our previous SPAC transaction with QuantumScape. And so, we pulled all this together and we said, what is at this intersection of these two mega trends? And we look at it as charging. And we said, yeah, there’s a lot of charging companies out there, but what is the one charging that’s really taking advantage of energy management and Wallbox is the only company we found that’s doing that. So, I would say it’s a culmination of collectively, we’ve got about 300 years of automotive experience at Kensington. You know, I probably have the least amount as an operator, but I was investment banker for 20 years. But this team that we’ve assembled is amazing and we continue to be the only SPAC out there with real automotive expertise. You know, I kind of kid to people, some of these other SPACs, you know, they claim that they’re automotive SPACs, but they maybe been automotive experts for about 30 days, you know, my team is automotive experts for 30 years. So very different environment.
Julian Klymochko: And speaking of your team’s automotive expertise. Now Kensington Capital Acquisition II, your seconds SPAC. First one, you mentioned QuantumScape deal very well received by the market, a success in its own right. Now you’re looking to continue that with the WPX deal. Can you discuss your underlying thesis behind the Kensington Capital Acquisition series of SPACs?
Justin Mirro: Sure. Well, you know, it’s a great question you’re asking. We actually have a standard investment criteria that’s really gone unchanged regardless of whether it was QuantumScape or Wallbox or any of the other targets that we really look at as part of this process. And you know, as a bunch of engineers, you can imagine we looked at the entire universe and said, first of all, what makes an excellent company? You know, that’s the first element we had to look at. And we have a number of parameters that we look at that are operational, that are financial, that are competitively positioned. But then there’s also a lot of subjective ones, things like, how good is the management team? You know, how competitive is the product? Does it have growth rates that we believe are going to be sustainable in the future?
Is it selling into a total addressable market that we believe is defensible by the products that they’re developed and planning on developing? So, all these factors, we put them all into our, you know, I’d say our secret sauce formula. And you know, in the case of QuantumScape, before we ever announced that deal, we had looked at over 300 companies and before we ever announced the Wallbox deal, we looked at over 500 companies.
Julian Klymochko: Wow.
Justin Mirro: So, I don’t want to say success begets success, but you know, clearly people, you know, saw this analysis that we’ve done, recognize that because of our expertise, you know, like I said, our team, you know, my guys were the top people in their organizations. Running purchasing for Chrysler, building plants around the world for General Motors you know, running electronics companies, multi-billion-dollar companies as the CEO or the CFO, having that expertise, knowing what you have to do, allowed us to get in there and look at these companies and really dig in, in the case of Wallbox.
I mean, given travel restrictions, it was a little tough, but we did virtual tours of all their facilities, met all their teams, but even in the end, we sent my team from Europe. So, part of my group is actually based in Europe, they went down to Barcelona. They spent days with the management team, going through the facilities, meeting the people, we sent other people to Northern California, looked through the facilities there. And we know we’re looking at, we don’t have to bring in consultants, we’d have to bring in, you know, no offense. We don’t have to bring in bankers. We are bankers, we are the consultants. That’s what we know, and so, you know, you had asked me earlier, you know, how do we know that this is a good company? We went through the financials; we went through the facilities.
We went through the tack time. We talked to operators on the line, assembling products. We look at the supply chain management. We look through every supplier, looked at the global constraints and supply base. You guys know, a lot of people are constrained with semiconductor chip shortages right now. We looked at that and we said, who’s supplying? What’s your rates? What are your terms? That’s the type of analysis we’ve done our entire career. So, for us, it’s second nature, but that was the work we did. And even after we got done that level of work, we were even more impressed with what Wallbox is created, really impressive company.
Michael Kesslering: So, in terms of what Wallbox has created, can you talk a little bit about the product and how it works?
Justin Mirro: Sure. Well, I mean to think about Wallbox. It’s a hardware and a software company, okay. And pretty much all charging is hardware and software. And I want to just set those two points aside to say why both of these are so different in this case, in the case of the hardware, the company has designed and builds and assembles 100% of everything they’re selling. That’s very unique in the industry. And it’s very important because it allows you to manage your supply chain. It allows you to manage you know, all of your intellectual property and allows you to create significant profit margins. Wallbox has close to 45% gross margins, it’s unheard of in the industry. Then the next closest charging company is half of that. And there’s many that are single digits. If you’re a manufacturing company and you have 45% gross margins, that’s telling the world that you are taking the raw material and turning it into a valuable product that people are willing to pay for.
So that right there is, you know, its fact, its historical numbers, that’s rock solid. The software also fully designed in house. And that’s very important because these two communicate very well together. There’s no outsource licensing, there’s no software you can do over the year updates, things like that. So, the company is completely vertically integrated. And what do they produce? This is where it gets very interesting. The company has cutting edge AC level two home chargers, okay. There’s lots of companies that make AC level two home charges. In fact, you can go on Amazon, there’s twelve that you could pick from. And frankly, they all look about the same. They’re all about the same price. Wallbox is the only company that has features that don’t exist elsewhere. What are some of these features? Bluetooth connectivity. Why is that important? It’s important because there’s a lot of times where you hook up your charger in your garage or outside, or in the basement, or a parking structure, there is no WIFI.
You can’t do anything; amazing feature and it’s included. They have electronic locking. What does that mean? Well, if I have my device, here in the U.S. most people are going to put them in their garage, but there are some applications in apartment building a condo complex that has got to be outside. Do you really want to have that unlock where someone can come and take your juice? Well, Wallbox is the only one that has an electronic lock on it. You walk away from it. No one else is touching it, interesting stuff. And then all the other things that go in there, it’s small, its high power, its low heat, all these great things. So, we tested all of the leading competitors personally. We bought a car; we bought all the chargers. We tested them, no one’s is nearly as good as Wallbox Pulsar product.
And that’s just for home. Why is that important? Our analysis, 70 to 80% of all charging right now is done at your home or your place of business. Hmm, okay. I don’t know if you guys have electric cars, but the first thing you do when you buy, when you bring it home is you got to plug it in. And if you don’t have one in your garage, you get one really quickly. So public charges are nice, here in the United States you’re only using a public charger if you really have to. And frankly, if there’s a public charger within 10 minutes of your house, you’re not using that one either, because guess what? You’ll figure out a way to get home, because you’d rather get home, put it in your garage, charge it while you’re doing something else, than goes somewhere and have a charge for a half hour while you have to make up doing something, get a coffee, go shopping. You don’t drive somewhere, you know, you don’t go to get gasoline for your car, just so you can go do something else, right? So, we don’t believe in that philosophy. We believe the home charging and the business is the key, so that’s the one product. The next product in the range is a DC bi-directional charger. Well, what is that? Well, it’s a DC charge, which goes directly into your battery. So, there’s no inverter, and it’s bi-directional. Interesting, that means I can charge my battery and my battery can charge back to the house or back into the grid. Wallbox is the only company in the world that has that technology today. There are companies are talking about it. There are companies are thinking about it. Even solar companies, they said they’re trying to do some things with some of the OEMs.
They don’t have a product. It’s very difficult to make that product. Some large utility companies have talked about it and they have a product it’s about $10-20,000. This product I’m talking about as the quasar product, it exists today. And Wallbox has sold thousands of these, that certified in Germany, UK, Australia, certify in the rest of the Europe shortly, there’ll be certified in North America shortly, this is a game changer. I can Mount it in my garage tomorrow. It’s amazing product, total game changer. That is the energy management product, okay. And then the third category is the company makes a public charger. And I just said a moment ago, we don’t necessarily believe in that public charter. Well, we got orders for 8,000 of these public charters. That’s over a hundred million dollars.
We said, we’ll build them, but we’re building them differently. Why is ours different? Because our public charger is a shell and it can hold up to six of our DC bi-directional charters inside of it in modules. So, we now get the economies of scale and we can sell that public charger for $12,000. It’s a public charger, that is OEM grade, it’s modular, you can make it as powerful, or you can make it more efficient if you want, you can be running it, one module can crap out and pull it out while its charging cart replace it. It is a very powerful engineer product. Other companies out there will tell you; we have a water cool public charger. I mean, what’s the last thing you need is water running around your battery pack. Ours are so efficient, it’s 97-98% efficiency, you don’t need water. So, from a product standpoint, the company has designed, developed, builds all this in-house at 40 to 45% gross margins.
That’s what we love about it. And the fact that the products they’ve sold over a hundred thousand of these products in over 68 different countries, I mean to get certified in one country is hard enough. And to explain just how difficult that is, the company sells our product in France. It’s so hard to get certified in France because the French utilities don’t like anything connecting to the grid. You buy a Tesla today in France, you don’t get a Tesla charger with your car because they’re not certified in France. You get a Wallbox charger in France with your Tesla. So really neat capabilities of the company.
Julian Klymochko: Right, and I appreciate you going over the product suite, the margins, and specifically the product differentiation with respect to the competitors. Because as you indicated, there’s quite a bit of competition in the market. You also mentioned the significant market traction that the company is getting. And I was wondering if you could discuss, you know, some of the market opportunity, how penetration is coming along and who are the biggest customers that you’re seeing out there in the market for the products?
Justin Mirro: Sure. So, you know, the company just started selling in North America, just earlier this year, a few months ago.
Julian Klymochko: Right.
Justin Mirro: So very new, but the business model, you know, that the company has really developed is very impressive. As I mentioned, the company has, I think, nine offices in six countries today, they’re certified in 68 countries to sell the product. And they’re certified by a number of OEMs. Guys like BMW, Nissan, Mitsubishi, and that’s primarily because of the bi-directional charging. So, if you own a Nissan LEAF, Nissan has certified you to use the battery to charge back into your house. In fact, that’s what they’re doing over in Europe a lot. So, you know, people in Europe have a much better appreciation for energy usage. Well energy is a lot more expensive there. So that kind of drives the process.
But what people do is they plug in their Nissan LEAF at night charges, you know, fills the battery at night, at lower energy rates. In the morning, they use that battery to kind of cool their house down or run their air conditioning. And they leave for work. They take that car to work, plug it in their, charges at work, in the evening charges back. And they keep doing that. And our software at Wallbox can track all that. And it can actually show, in some cases, you know, some of our customers are saving hundreds of dollars a month just in utility savings from balancing during the day. But, you know, the customers are, you know, I would say there’s a couple of different buckets. You know, one of the big buckets is utility companies. They’re buying a lot in particular company like Iberdrola which is one of the largest European utility companies.
They own some other country utility company like Scottish Power they own, so they’re buying a lot of the public charger. So, we have a lot of energy companies. We have a lot of installers. You know, so there’s a lot of like solar panel installers are big customers because, you know, a lot of times people that are using electric vehicles also have solar panels. So, we get a lot of that. And then of course, all the OEMs, as I mentioned, we’re certified by those names, but we sell through all the OEM dealerships as well. Because once again, that’s really how this product is sold. When you buy a new electric car for the first time you asked your dealer, hey, who is certified? Who has a Charger? You know, remember this is a two 40 volt, 40 to 48 amps. You know, it’s a lot of power, you want to have a certified product. We also sell through e-commerce and retail. I think it’s less than 10% of the sales, but you could go on Amazon and buy a Wallbox charger today, if you want it to.
Julian Klymochko: No, that’s very helpful. So, I did want to get into the weeds a little bit on the recently announced merger.
Justin Mirro: Sure.
Julian Klymochko: Wallbox, your SPAC Kensington Capital Acquisition II. Value the business at $1.5 billion enterprise value and concurrently raising as much as $330 million. So, wondering what is the use of proceeds primarily for this capital infusion?
Justin Mirro: Sure. So, pointing out, it’s a 1.5 billion. That’s the post transaction enterprise value. And you know, and the the deal is 1.4 billion was the actual transaction value, the equity value of the deal. But really the purpose behind the transaction was raise the capital for the company. And we’ve raised $330 million for the company and the company already has some cash on the balance sheet, very limited debt. So essentially when this deal closes, you know, the company will have about $330 million of cash, and that is to fully fund the business plan. Now, keep in mind, this is a company with significant sales today. And as I pointed out earlier, very strong gross margins already. So, the company’s generating cash from the sales, but it’s also a growth stage company. You know, right now that company has three manufacturing facilities, two in Europe, and one in Asia.
Our plan is to increase capacity at all three of those facilities. We’re also going to add a new facility in the United States, and that should be up and running in 12, 18 months from today. But these are light assembly plants. We can build these plants for, you know, $20 million because the product is so well engineered and we ship all the components to the U.S. and we build it here. And so, we’re going to be expanding through Capex. That’s part of the 330 million, but the biggest component of that capital that we’ve raised is for the working capital to grow the company, to build inventory and to build our really, it’s our accounts receivables. Because as you know, if you’re a global company selling in 65 different countries, there’s a lot of products on boats at any given time.
And you have to make sure that you have enough money to build out that inventory. And that’s the one area where we’ve seen a lot of these SPACs announced deals, and they talk all about the capex they are going to spend, but they never talk about the working out, oh, don’t worry we’ll get to that. You know, that’s not how we operate in Kensington. We know how to build global supply chains, and we know requires a lot of capital, and we want to make sure that we have all the components there. Even on Amazon today, you order a Pulsar, you are going to get it delivered in 48 hours, no problem. It’s very difficult to do that with a lot of the other products you see on Amazon today, they’re all back order because they’re either not getting any components. They can’t ship them; they don’t have the capital to grow. We’re making sure that we have that capital. And basically, we have enough capital that we’ll get to positive free cash flow. And this company will never have to raise another dollar of equity again.
Julian Klymochko: And so, speaking of use of this capital forecasting, pretty significant revenue growth, and more than $2 billion of revenue by 2027. So, wondering if you could discuss the growth plans in terms of, you know, the products you’ll be selling, the markets in which you’ll be penetrating? You specifically mentioned the fairly new in the U.S. I assume that’s a big area of growth for the company.
Justin Mirro: Yeah, absolutely. So, you know, the breakdown and I don’t have the actual breakdown here, but you know, the total sales number about 10% of it is software.
Julian Klymochko: Okay.
Justin Mirro: So, you know, when you purchase, you know, a new Wallbox, you put it up in your garage, you get free software with it. There’s no charge for that. But if you want to say, you know, put the app on and you want to charge your neighbor to use your Wallbox, which you can do, and you can track exactly their usage. We charge about $5 a month for that software package. So, it’s not really used for the home, but it’s used for a lot of small businesses, apartment complexes, condo complexes, $5 a month. I think we’re thousands of people are using that right now. So, a nice recurring revenue stream there. As you get to the bigger units, the bi-directional, the one I was talking about, the DC bi-directional. When you’re really trying to manage your power every single day, you want to use that software too, that’s also $5 a month. And then later on, we have an app. And if you want to, let’s just say, you’re taking a trip across country. You want to use a public charger, anyone’s public charger, not ours or someone else’s. You can use the same app, that’s on your account for your charger at home. And you can say, hey, find me a charger. And our app goes one step further and make sure that the charter is functioning. You can reserve it; you can pay for it. You can give comments back and you can read comments on our app. It’s actually a very powerful social tool because we’re actually selling that data also, to guys like TomTom, so they can update the real-time map showing. Because I don’t know if you guys know, many of the public chargers, they don’t function. They they’re always breaking down. So, this way you can see that it’s actually working.
But so, the big component is that. Then really the breakdown is those three categories, public chargers, the DC bi-directional and the AC level two chargers. And I’d say it’s about a third, a third, a third where we’re seeing this right now is, you know, if you were looking at the baseball analogy, we would say, we’re probably not even in the first inning yet, because when we think about EV charging, you know, up to this point, it’s kind of been Tesla, you know, has 80% of the market and everyone else is kind of competing. But what we’re seeing right now is, especially here in the United States, we’re just starting to see electric cars coming out. Ford just is the first one with a kind of a high volume with the Mach-E, but we’re going to see GM, you’ve seen Chrysler now announced their entire lineup.
And if you look at the data and based on our analysis and our work, we did with QuantumScape, the data points, you really have to start looking at is 2024/2025. Because up until that point, everyone’s going to be fighting for stuff. That’s when we’re going to really have significant penetration, we’re going to have significant market share in electric vehicles. It gets back to our thesis which is, we’re going after the low-hanging fruit, which is the home and small business. Everyone is buying a car, needs this. We want them to have the best product out there. I would call the apple type product of charging, which is an amazing piece of hardware and amazing piece of software and a company that is thinking outside of the box as energy management when no one else is doing that. So, it’s putting that all together and driving it with that product and then leading into all the other products.
Michael Kesslering: So, you have experienced now with your process taking the QuantumScape public, now in the process with Wallbox. I mean, how is this SPAC as a structure, uniquely situated to take a company public versus some of the other options such as IPO or direct listing?
Justin Mirro: So, Michael. I love the question and look, you know, I spent most of my career as an investment banker that involved with the hundreds of public transactions. And then I’ve also been involved with a lot of private equity over the years. I got to tell you, you know, despite the fact that SPACs sometimes get a bad rap, okay. I still think it is the most efficient and most transparent product for financing, the right kinds of companies. I mean, the transparency is amazing. I mean, we’re an NYC listed company with fully audited financials and full disclosure. You can’t get any better than that. I mean, private equity, hedge fund, no one knows what they’re getting, you know, there is hidden fees upon fees, upon fees. This is very clear and I think the fact that there’s been a couple kind of bad apples in the bunch, unfortunately, there been a couple of bad deals. It’s more a Testament to the team, the sponsor team doing the right work.
I mean, we’ve looked at, as you can imagine, we’ve looked at every single auto company that’s gone down the path of a SPAC and we chose QuantumScape the first time around and we’ve chosen Wallbox this time, and we’ve done the work. There’s been deals out there where people just did not do the due diligence. And when they don’t, you have a bad company and you have a transaction, you’re going to get a bad result. We look at the complete opposite way. We’ve said we’re finding the best company out there, and we’re going to run the most efficient process. And I like how you use the word process, because while we’re also very much industry focused team, we’ve done so many public transactions in our careers. We understand and appreciate the process behind it. And in the case of QuantumScape, from the day of announcement to the day that we closed and funded that deal to 89 dates, a record.
It wasn’t a record for just setting the record. It was efficient, and we had every step of that process laid out precisely. The S-4 filing, the proxy statement, the registering the pipe shares, the deep alleging of the security. I mean, you have to understand that from an investment banker standpoint. And if you have to rely on your advisors or your lawyers or accountants, or your bankers to do that, you might as well not be doing. So that’s why we’ve said process is key, but first it starts with a great company and we feel like we have the formula and we’re sticking to it.
Julian Klymochko: Yeah, and your comments with respect to SPACs, make sense. I mean, you can have good SPACs, bad SPACs. You can’t really blanket target an asset class, just like you can have good private equity deals and bad private equity deals. Now, Justin, given that you’re a car guy. I always love asking a car guy question, before we let you go, two questions actually. What is your favorite vehicle of all time? And secondly what’s your favorite electric vehicle this year?
Justin Mirro: This year? Well, my favorite vehicle of all time is, I would probably say the McLaren F1.
Julian Klymochko: Okay, nice.
Justin Mirro: I probably driven it once. And it was amazing, but the one that’s right behind it, I would say is number two and very similar to that car. And probably the stepchild of that car is the Saleen S7, and that’s mine right there. I actually have Steve Saleen personal S7 in my collection.
Julian Klymochko: Oh wow.
Justin Mirro: And I rebuilt it from about 12 boxes of parts. So that one’s very special to me, but I would tell you that this one’s also kind of special. That’s my 66 Mustang GT Convertible, driving it in Manhattan and to drive a car, you know, that’s 55 years old and to appreciate everything that goes along with it. It makes me appreciate my latest car, which is my Mustang Mach-E, which I got to tell you, 55 years apart, they’re both called Mustangs.
They both have a steering wheel and four tires, couldn’t be any more further apart. And it’s really exciting, and look I have three daughters. You know, the fact that they’re all about the environment. One of them is actually an environmental engineer. She took after her old man, she went to the University of Michigan, mechanical engineering. She went there for environmental engineering. But the fact that this whole next generation is all about the environment and getting back to my original story back when I was young, we all built these cars with the biggest engine you could, that’s what’s cool. Now it’s cool to make a car go the furthest it can on the least amount of electric charge and to make the world a little bit better and a lot more green for the next generation, I got to tell you. It kind of gives me goosebumps and it makes me feel like I’m actually doing something good rather than be an investment banker, actually creating value for what, so I’m pretty excited about that.
Julian Klymochko: Yeah, no doubt. There’s a big ESG theme to most companies going public these days. So, thank you for your time today, to the extent that investors are interested in following the company, currently trading under the symbol KCAC, and when this deal closes expected, I believe in the third quarter, it’ll trade under the symbol WBX. So, Justin, thanks so much for coming on the show today. I appreciated your insights and just key characteristics and aspects of this deal. It’s really helpful for investors, so thank you.
Justin Mirro: You bet Julian and Michael. Thanks a lot for your questions. You guys are really insightful in terms of digging in and hopefully your listeners will enjoy the talk. So, thanks guys.
Julian Klymochko: All right. Cheers. Bye everybody.
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