Key Highlights:

• XCHG looking to list on Nasdaq after reporting a 46% increase in revenue for the first nine months of the previous year.
• Established by former Tesla engineers, the company seeks to stand out with its fast-charging stations that can feed excess power back into the grid.

By Edith Terry

XCHG Ltd., a lesser-known player in the fast-charging station industry, is poised to electrify its financial prospects with a Nasdaq IPO. Despite its projected market value falling shy of $100 million, the fundraising could exceed expectations, fueled by the company’s promising outlook and a robust underwriting team including Deutsche Bank, as well as China-focused powerhouses Huatai Securities and Tiger Brokers.

According to XCHG’s IPO prospectus filed earlier this month, the electric vehicle (EV) charging market is poised to reach a valuation of $90 billion by 2026. The demand for fast chargers using direct current (DC) is expected to spike by 33% annually, from 4.0 TWh in 2021 to 52.0 TWh in 2030. XCHG, the second-largest seller of DC fast chargers in Europe, operates in a fragmented and fiercely competitive market, as noted in the prospectus.

Competing against industry heavyweights like Tesla, NaaS Technology, EVgo, and Blink Charging, XCHG needs to navigate an environment where Blink Charging trades at a price-to-sales (P/S) ratio of 1.72, with EVgo close behind at 1.56. A similar P/S ratio would place XCHG’s market value at approximately $60 million, based on its projected sales for the current year.

Although XCHG claims to be a global leader, its sales volumes are still relatively modest. The company’s DC fast-charger sales more than doubled from 807 in 2021 to 1,934 in 2022, reaching 1,443 in the first nine months of the previous year. Since its inception almost a decade ago, XCHG asserts to have sold over 40,000 chargers worldwide.

In terms of revenue, XCHG’s figures, while still moderate, are on an upward trajectory, with a 46% increase to $28 million in the first nine months of the preceding year, up from $19.2 million in the same period a year earlier. However, its operating expenses tripled from $6.3 million to $18.4 million over the same period, largely due to pre-IPO share-based compensation of $7.5 million. Consequently, the company recorded a net loss of $6.7 million in the first nine months of 2023, reversing a net profit of $700,000 in the corresponding period of the previous year.

XCHG offers a range of products including the C6EU, a smart DC charger with a maximum output power of 200 kW, and the C7 Ultra-Fast chargers with a maximum output of 400 kW. Additionally, the company has introduced the Net Zero Series with an output power of 210 kW. Notably, the Net Zero Series has the unique ability to return excess power to the grid, thus potentially lowering operating costs and making them more alluring to buyers.

Forging a Distinct Path

Founded in 2015 by former Tesla project managers Hou Yifei and Ding Rui, XCHG initially targeted China’s burgeoning electric vehicle market. Recognizing the dearth of charging stations during China’s NEV boom from 2009, the duo identified an opportunity and drew on their Tesla experience to enhance chargers through cloud-based management software. By 2018, XCHG had supplied 20,000 charging points in China, with the nation boasting 321,000 public charge points by the end of 2017.

As XCHG expanded its horizons to the European market, which also saw significant government support, its revenues in Europe surpassed those in China. Notably, European revenues surged by 120% year-on-year to $18.2 million in 2022, eclipsing the $4.2 million from China and $6.9 million from other countries. Notably, Shell Ventures is among the European backers, having participated in its series B and C funding rounds in 2021 and 2023.

Despite some reservations from Seeking Alpha analyst Donovan Jones, who cited decelerating revenue growth and unproven operating results, XCHG’s Net Zero Series could potentially be a game-changer. While some remain skeptical, these ‘battery to grid’ chargers might revolutionize the industry if embraced by charging station operators owing to their potential cost-saving capabilities.

XCHG’s plans for IPO proceeds include the establishment of a charger factory in the U.S. and further investment in R&D and global market expansion. By initially turning its focus towards the rapidly developing European market instead of the slower-paced U.S., XCHG exhibits foresight given that Europe boasted 45,000 installed chargers in 2021, compared to 23,100 in North America. The European market is projected to grow by 83.6% annually between 2022 and 2026, slightly overshadowing the 81.5% forecast for North America, translating to 910,000 installed chargers in Europe by 2026, far surpassing the 544,200 in North America.

The stage is set for a charging revolution, offering enormous potential for innovators creating chargers to fuel the next generation of NEVs. Now, XCHG is gearing up to emerge as a global leader in this dynamic realm and galvanize its business on the back of its upcoming IPO.

This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.