March 28, 2022 – On today’s podcast we welcome special guest, Allego CEO Mathieu Bonnet. Allego owns a pan-European electric vehicle charging network.

On the show, Mathieu discusses:

  • The European EV market and its 46% expected growth rate
  • The future of ultra-fast charging
  • How Allego expects to generate 30% IRRs from its owned sites
  • What it was like working with private equity firm Apollo on Allego’s going-public transaction
  • And more

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 accelerateshares.com.

Julian Klymochko: We have Mathieu from Allego on the podcast today, calling in from the Netherlands. Mathieu how are you doing today?

Mathieu Bonnet: Yeah, I’m doing fine. Thanks a lot. Thank you for hosting me.

Julian Klymochko: So today we are getting into the details on the European EV market, specifically from a charging perspective, what really surprised me about the Allego story and what you guys are building is that the European EV market is nearly twice the size of the United States, EV market. Not only that, but it’s expected to grow at a 46% Cagr. Would you mind talking to us just about kind of the macro thesis behind the company and the market behind EV charging in Europe?

Mathieu Bonnet: Yeah, sure. Yeah, let’s begin with market because I think that’s quite amazing. What’s going on here. In Europe, we are in the middle, maybe just beginning of really big revolution from a shift to fuel cars, to EVs. And just to give you a flavor of that. In Q4 2021, the EV penetration in term of sales represents more on full battery, not plugin vehicles, but full battery, represent more than 17% of all the sales cars in passengers’ cars in Europe. So, you can imagine that it is getting very, very important. And there are many reasons for that. Regulations which is very, very strong in Europe to shift to EVs. And it will be forbidden to sell any fuel cars in Europe, so that is reason one. At the end of the day, all the cars will be electric.

Julian Klymochko: Yeah, seems to be that’s where, clearly the market is heading. Now let’s talk about Allego, current charging network. It’s massive. I believe it’s coming up to 30,000 locations soon. Can you talk to us about Allego network and also how it compares to competitors?

Mathieu Bonnet: Yeah, sure. So, we began in 2013, and we already decide to equip new infrastructure, which is the EV chargers. So, we are focusing on public chargers, and we began with slow chargers. What you have in the U.S., North America, what we call level two. And very quickly, we moved to the fast and Ultrafast chargers for public charging station, because we do believe that when you want to charge on a public station, you want to charge quickly. So the reason why you want to do it in few minutes, our network is in the Netherlands and in 14 countries in Europe, in the biggest market, Germany, France, UK, all over Europe. And we are the largest in term of footprint network in Europe, actually. So, we are ahead of the competition in term of numbers of charging station all over Europe.

Julian Klymochko: Can you talk to us about the technology? Because clearly Ultrafast charging is a focus of the company going forward, started out in 2013, slow charging. Obviously, no one wants to sit around for an hour waiting for their car to charge up. So, can you talk about how important this focus on fast charging is?

Mathieu Bonnet: Yes. So, and to make it clear to everyone, ourselves, we do not manufacture hardware. We focused primary and that’s our tech because we are a tech focus company. We focus on the software layer to manage all the chargers and what is important for, because we considered that it’ll be a commoditized market, the hardware proceed, the plug I will say, even though the technology is improving. So, we need to monitor many different kinds of chargers in real time with the energy, take care of the user authorization for you to be recognized for you to process the energy and for you to process the billing. Because we do all the chain and we can do it everywhere in Europe, of course, on our networks. And we are already managing more than six million charging. For instance, last year in 2021. And it is growing really rapidly and dramatically.

Julian Klymochko: So just to make sure I fully understand the business model, you acquire hardware from the manufacturers, and you deploy them, you own this fast-charging network, but in addition to that, you do provide third party services. Is that correct?

Mathieu Bonnet: Yes. Yes. So, we have two revenue streams. One of our revenue streams consisting of selecting sites and there we have a very powerful, advanced tool to forecast traffic and to find out the best layout of the charging station. How many charging station, we will install at the beginning and maybe moving ahead with increase of the traffic, we install the chargers, and we manage, operate them on the long term, which is 15 or 20 years. And we directly sell to the EV drivers charging station. That’s one of our revenue streams and as well, another revenue stream which consists in selling charging solution, comprehensive solution to corporation. For instance, we have won a big deal with Nissan to roll out for their 600 dealership first charging station along their dealership. For their customers, in order to charge their car. So, we provide all the services from the chargers in station, and we onboard on our platform, all these chargers during a five-year period so that they can track all the traffic, they can track the data, they can track what construction they use and to understand the pattern of charging.

Julian Klymochko: So, going through Allego investor presentation, one thing that caught my eye is the part on unit economics, specifically discussing 30% IRS generated from own sites. This is obviously extremely attractive for investors. Can you give us some details backing that number of the 30% IRR?

Mathieu Bonnet: Yes. So, what we do, so we select the sites, and we need to select the best sites. So, the reason why I just mentioned the two, we used to do that. We design and that’s our property. We designed the layout of the chargers with the transfer for instance, with older connection with the grid operators to be supplied of electricity. And here we have as well, energy platform in order to make sure that we have the right electricity. I could come back on that, which is 100% renewable because that’s quite important to have zero emission, mobility. And then we operate these charges. We have a Capex, okay. Investment at the beginning, but a matter of fact, because we have our technology to manage our chargers, the OPEX are quite low and are mainly linked with price of energy, but the fixed cost is going to be reduced with the higher utilization rates on our chargers.

For instance, when I talk about fixed cost, that’s the maintenance cost. And so, what is very important for our model. It is a KPI called utilization right. That’s the number of cars per day. For instance, that use, specific charger and with the growing number of cars, we have this number growing and growing. And now with all our projection, figures you have mentioned. We consider that with eight sessions on average per and per charger, we will reach this IRR. So, you may say, oh, but if it’s so interesting, everyone will try to put some charges, I guess so, but it is quite complex. Why that? And to find best sites and here you need to have the tools. And we have a tremendous backlog of more than 800 sites ready to be rolled out, that’s one. And second, you need to secure great connection. And here, that’s very difficult. So, it is a long grabbing game, I would say, in a way. With the right techno in order to operate during long term, without any issue. So, with the high [Inaudible 00:8:51] time, your charger, and that’s where our technology of what we call EV platform to manage all our charger is very important because without this technology, it’s very difficult to make it work smoothly and to make it work economically.

Julian Klymochko: Certainly, it does sound quite difficult, no doubt. One potential issue with EV charging. And you noted this is, that the importance of renewable energy. For example, if the EV infrastructure is powered by, you know, coal powered energy, then it kind of defeats the purpose, but you indicated this focus on renewable energy, powering your charging stations. Would you mind discussing that?

Mathieu Bonnet: Absolutely. That’s quite important because if we use a coal plan for instance, globally speaking in the term of cycle to generate the electricity, you will limit more than the new standard, for instance, in Europe for fuel gas. So, the big deal not to have zero emission mobility. So, it is important to have, 100% renewable to do that. And to be able to do that, we make sure that our electricity comes from this kind of renewable. So, we can be directly plugged with this kind of assets for them to feed the electricity on our charter, because we are the techno and balancing what we call, sorry, to be technical, but balancing perimeter in the different countries in Europe to do that. And we are active on different power markets in Europe, which is a liberalist market. And so yes, we have all the techno to be sure that we can track the right electricity on our charger. And it is very important for our customers.

Julian Klymochko: No doubt because the environmental benefits are certainly one of the main drivers of EV adoption. Now, one potential concern about investors is we’re discussing this 30% IRR, but are those attractive returns in any way dependent on subsidies or incentives or any risk of those going away If so?

Mathieu Bonnet: Coming back to what you’ve just said, about the importance of zero emission for the adoption of fuel. That true, that’s on, that’s a big push, but there is another one, that’s the cost. I do think that there is maybe differences between what we see in North America and in the U.S. or Canada and with Europe. We have, of course benchmark, which is the fuel price. And the fuel price is so high in Europe. Just to give you a favor more than 8.5 dollars per gallon.

Julian Klymochko: Wow.

Mathieu Bonnet: That the charge on our extra fast station, even though you pay a premium to charge very quickly is much lower than filling your tank. So, it is an economic reason as well. It’s much more efficient to uh, drive an EV right now than a fuel car in term of cost. And the total cost of ownership is, much less for EV than with fuel cars. So that a very, very, important driver right now with this push to EV and that’s the reason why I would like to trace it for your listeners, because that’s very different from the U.S. So that’s the reason why, it’ll be massive [Inaudible 00:12:30] and there will be no way back.

Michael Kesslering: You discussed some of the economics, the unit economics, from your perspective. Can you talk about the economics from the perspective of real estate owners for your sites and why you are having one of your sites would be more attractive than some of the other uses for the real estate?

Mathieu Bonnet: Yeah, so, and maybe it can be linked with a part of the question I haven’t answered to Julian regarding the subsidies. We can make it thrive with good economics, with our changing station, without subsidies because of the economics I just mentioned in Europe and the dynamics of this economics. Anyway, there are some subsidies, but more global one, which is more credit carbon, because if you have some avoidance of emission of CO2, you can trade. It’s the equivalent of trading your CO2 emission on the market and in Europe, have a market for that. So, it is a market mechanism I would say, that can be used as well. And regarding the economics for the sites, for the site’s owner, basically speaking, what we bring to them, that’s a new service.

For instance, when we part partner with a retailer for instance, we bring a new service for their customers being able to charge. So that’s the reason why, we have a kind of return which is basic now because they understand that they have something valuable as well in term of spot. And order of magnitude is around 1 or 2% of the revenue. I say it’s quite reasonable because in addition to that, which is, I would say hand money, we bring this new services that is needed for this retailer, because if they don’t have that, well people with EV will prefer to go on a retailer with an EV, with charging station, on their parking lot, instead of going to another one without, so that’s a very good push and we reinforce the Capex. So that’s quite interesting in term economically as well for them. So, it’s a win-win situation.

Michael Kesslering: When you mention the carbon credits, are those going to the real estate owners or to you?

Mathieu Bonnet: No, no, no, they’re going to us because we are the investors, and we are the owners of the station.

Michael Kesslering: Interesting.

Julian Klymochko: It’s really good to know. Thank you for clarifying that. Now you recently announced a going public transaction, the merger with SPAC Spartan acquisition III and what I should note is that that SPAC specifically it’s backed by Apollo Global Management, massive global private equity firm. What was it like working with Apollo?

Mathieu Bonnet: Well, so you have understood that for our plan, we need to install and roll out charging station. So, we need to fund our Capex. So that’s the reason why. We wanted to raise capital and a way to do that, why we consider a different route to do that and different ways. And the SPAC was considered a good one, so that the reason why this universe, and we’re very, very happy and proud to chosen, approve where the franchise, [Inaudible 00:16:12] where they are very knowledgeable as matter of fact, of course in private equity, but I mean, infrastructure, so they know energy, and that was quite important for us that we could partner with some people who know that and with very learn, I would say professionals that they can understand our business quickly. So that’s the reason why we partnered, given all of these and as well with the size of the SPAC, which is 500 more, million-dollar SPAC. It was quite interesting for us in order to fund our plan.

Julian Klymochko: Plus, that does come with a pipe financing. I believe that being said, was it exclusive discussions with Apollo?

Mathieu Bonnet: Very happy to partner with them.

Julian Klymochko: That makes sense. I’ve been watching the deal since it got announced in July. Initially it was expected to close.

Michael Kesslering: That’s great to hear, as you look forward into the future, do you have any plans to expand beyond Europe or into Asia or North America? and if not, what are some of the bottlenecks to doing so?

Mathieu Bonnet: So right now, to be honest, Michael, we are going to focus mostly in Europe, given the size of the market and the dynamics of the market. Our plan is based on Europe, but we will consider along our journey that’s for sure, all the market as well, but not in the short term. We definitely want to grow where we are and to make the most for the position we have already built.

Julian Klymochko: One of your EV charting peers recently went public by a SPAC. So, when investors are looking at the sector, some are going to want to pick one stock. Why should that be Allego? What separates you? What differentiates you compared to your competitors?

Mathieu Bonnet: So first, given the others, I think we are in the biggest market, which is Europe, and that’s a big advantage. So, if you want to have a favor of what’s going on in the leading market, it is happening now in Europe, and it’s three times bigger than U.S., that’s one. Second, we are nearly a 100 million Euro revenue company already, and we are positive, operational positive Ebitda. So, I mean we are talking about real figures, real business and growing business. So, we are not in a startup of mode. We have much more than that and we are now in an execution mode of pouring out our stations.

Julian Klymochko: From the investor presentation. It seems like there is a big focus on positive EBITDA, which is great to see in the current market environment where investors don’t necessarily have a lot of stomach for riskier unprofitable companies. So, you’re definitely heading in the right direction, a massive market ahead of you, the going public transaction expected to close early March, once it’s up and trading as ALLG will be the new ticker symbol. So, Mathieu, thanks for coming on the podcast today, going to be watching the story closely and wish you the best of luck.

Mathieu Bonnet: Thank you very much hosting me. Thank you, guys.

Julian Klymochko: All right. Thanks so much. Bye everybody.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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