Fastned, Grow As Fast As You Can — Avoid Making Profits As Long As You Can
Fastned did well in 2022. It was a strong recovery from the market distortions caused by Covid-19 and the Ukraine War. If the company is doing this well in the face of such adversity, what would a more normal year look like?
That is why, after reading the 2022 Fastned annual report, I am craving the 2023 annual report. I realize I have to be patient. Our first checkpoint is the Q1 2023 operational sales numbers. They confirm my expectations.
A warning for our USA readers: Dutch companies do not publish quarterly reports like the 10-Q required by the SEC and Wall Street. There is a conference call after the publication, and it is with video. The slides used during the presentation are available for download.
Dutch companies have an annual report that is much more than just the P&L, balance sheet, and cash flow statement. It is an attempt to inform investors as much as possible on all aspects of the company. For the difference in corporate culture and relationships to stockholders between the USA and continental Europe, just browse the Fastned annual report.
Big corporations publish reports three times as big, with separate reports for their ESG activities. They take informing stockholders through the annual report very seriously.
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What was in the 2022 report that makes me so enthusiastic? Really, nothing new. With the Q4 2022 report and some numbercrunching at home, I could predict the outcome. What was in the report was confirmation it was really happening. Fastned was back in the fast lane to expansion, and later on, to profitability.
Just as was the case with Amazon and Tesla, fast growers should postpone profitability as long as possible. Not profitability, but growth, is the metric to measure these kind of companies. The first milestone is the revenue covering operational activities. It is not that Fastned would be profitable without growth, but autonomous growth would make it profitable in a few quarters.
I am not suggesting Fastned will ever be a global juggernaut like Amazon or Tesla, but the same rules apply. There comes a moment that the profitability of the operational parts is too big to all be invested in growth. That is when profitability becomes unavoidable.
The first indicator is cash flow. When the cash flow of the operational activities can finance a small part of the development and capex of the growth, it is starting. If my interpretation of the quarterly figures is correct, this was the (very tiny) case in Q4 2022.
The second indicator is when the operational activities are break-even. When not only COGS and OPEX, but also D&A and operational financing costs can be covered by revenue. This is when a normal company has to start paying taxes. This might happen later this year.
The losses on the new station development activities will delay the tax paying situation for some time. But with the growth of Fastned, it will likely be only a few quarters of delay. In the best case, it’s a half dozen quarters of delay after the operational breakeven. The best case is delaying profit-making as long as possible, directing all financial resources towards growing the company.
The last indicator of reaching success is when the free cash-flow becomes positive. My crystal ball does not let me look far enough into the future to see that moment. Besides, it is in large part a management decision about the speed of reaching 1,000 stations in Europe.
This is my own speculation. It might cause a fit at Fastned HQ, making the board ROFL.
The 2022 Fastned Annual Report
Back to the annual report and the numbers that made the light at the end of the tunnel become so much brighter. With energy prices being all over the map, increase in revenue is not really very interesting. Suffice it to say the margin per kWh sold was more or less constant. What is of interest is the growth in kWh sold. An increase in sales of 148% is impressive.
As you can see, both the revenue and the costs grew in 2022. Revenue nearly tripled and costs doubled. Many new stations is the explanation for the increase in costs. And before someone cries capex, there was also a significant increase in capex out-of-pocket expenses to the sum of €65.129 million. What is important in my eyes is the ratio between revenue and costs. In 2019, the costs were triple the revenue. I ignore 2020 and 2019 because of coronavirus distortions, but in 2022, the costs are less than double the revenue.
When you are a very tiny company, like Fastned was in the last decade before the coronavirus pandemic hit, high growth numbers were easy. Charging 3 cars in a month instead of a single car was growth of 200%. In 2015 and 2016, the growth was about 250%. But that dropped to below 200% in the following years. During the years with exceptional market distortion, the “Corona Years,” it dropped to 38% and 90%. That’s growth most companies can only dream of, but it’s a disaster when the expectation was close to 200%.
Fastned is now too big to see growth of 200% or more, in my opinion. The 148% volume growth in 2022 was flattened by the dismal growth of the Corona Years. Growth in number of stations is expected to be between 25% and 30% in the next two years. Growth of the number of chargers will be higher — it was 62% in 2022, with station growth of 30%. Not having expectations too high, 50% growth of chargers should be a realistic number to use for predictions.
This guessing game hints at revenues of €60 million in 2023 and >€100 million in 2024. That is in line with previous growth and therefore no big surprise. But what about profits? In 2022, there was €12 million in network expansion costs. With more stations and more teams in more countries, I will not be surprised if this grows to €24 million in 2024. Profit in 2024 is possible, but with faster growth, it would become more likely. But the bottleneck is the acquisition of prime locations.
Perhaps I should look at this as a race, like a marathon between revenue and costs. My money is on revenue. The question is, as always, when?
During the “Corona Years,” Fastned prepared for the growth needed when the world returned to normal. Before the start of the pandemic, Germany was the only other country with a real Fastned presence. (There was a single station in the UK.) Now the Fastned charging network is also present in Belgium, France, and the UK. This year, Switzerland will grow from 3 to >20 stations.
The next goal is to add six more countries to the network. Luxembourg, Ireland, and Denmark are perhaps not very impressive, but Spain, Italy, and Poland are three large, impressive countries in which to build charging infrastructure. Each country (except Luxembourg) needs its own new team. Five new teams without local revenue is the foreseeable future.
The goal is now 400 stations in early 2025. That is less ambitious than 400 before 2025. To get to 1,000 stations by 2030, Fastned needs to work on the many ways locations can be acquired, because the freedom for electric drivers might require a few hundred stations more by 2030.
For the Netherlands, 200 Fastned locations is enough for charging while travelling (the use case that Fastned is most often supporting for its customers). I would like to see the ambition of 400 stations in Germany, France, Spain, Italy, Poland, and the UK. For the 20 something smaller countries in and around the EU, an average of 50 stations is perhaps a lot to ask, but it would make travelling in Europe so much fun.
Okay, I am spoiled. I am used to the quality of Fastned stations. I feel cheated when charging at Tesla, Ionity, or another CPO. They have no roof, light, CCTV, or seats. It even costs more!
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