Energy drinks like Red Bull and Monster Beverages (NASDAQ: MNST) hit critical mass somewhere around 2006. Red Bull had already been around for 20 years, starting out as a popular drink with Thai truckers in the mid-1980’s…
And Monster was a penny stock for nearly 20 years. You could’ve bought shares for a quarter ($0.25, split-adjusted) in 2004.
But I mark the critical mass point for energy drinks as coming in 2006. October 2006 to be specific…
That was when I took my kids (4 and 6 at time) down to Baltimore’s Inner Harbor for the Red Bull Flugtag – which is German for “idiots who launch self-propelled flying machines over the water from 30-foot ramps.” The harbor was packed and the event was hilarious. Here’s a sample from youtube: https://www.youtube.com/watch?v=A-5ETjtcNuc
Monster shares traded for $2.70 in October 2006. It’s around $56 today. Red Bull is a private company, revenue has gone from around $3 billion in 2006 to over $10 billion today.
Crocs (NASDAQ: CROX) are another good example of what happens when a product hits critical mass. The stock price was stuck around $15 for its first 6 months as a public company. But then the shoes became something of a fad (cuz they were so ugly?) and less than a year later, the stock hit $75. Crocs shares were as high as $150 earlier this year.
In its most general use, “critical mass” refers to the point at which a venture becomes self-sustaining. The term was first used in regard to nuclear fission, and refers to how much nuclear, or fissile, material is needed to start a self-sustaining nuclear reaction.
In business, critical mass is the point at which a company doesn’t need to take on debt to fund its operations – the point where sales revenue (or operating income) is enough to make payroll, buy materials, do marketing, etc.
Like, the last business I was a part of, we were doing around $8-$9 million a year in sales. And it’s like we were stuck there. Of course, it wasn’t a bad place to be. But hard as we’d try, we couldn’t seem to add more than a few percent of growth every year.
We grinded, and once revenue hit $10 million, it was off to the races. It was as if $10 million was some kind of exponential launch pad – 5 years later revenue was pushing $50 million.
For a small business, there is a critical mass thing that kicks in at around $10 million. It’s as if your products suddenly strike a chord – adoption and revenue grows exponentially.
As an investor, one of the most magical, and profitable, scenarios is when some consumer product hits critical mass. Product sales kind of muddle along until something happens and BOOM – product adoption explodes and sales start spiking.
We are right on the verge of critical mass for the EV sector…
Is That Really “News?”
Now I know, electric vehicles (EV) aren’t exactly the same as energy drinks or ugly styrofoam shoes. EVs aren’t a novelty anymore, either. You see them everywhere, and I don’t remember the last time I saw an ad for an internal combustion powered car on TV. It’s all hybrid or EV marketing these days.
So it would be easy to think that the grind toward mass EV adoption and sales growth will stick pretty much to the trajectory it’s been on for the last couple of years. And that investing in EV stocks is more about tracking how well the various EV companies manage their costs and production goals. Most investors aren’t really concerned about missing the rising tide of demand that will lift all boats. Industry analysts are perfectly comfortable with their low single digit compound annual growth rates (CAGR).
As it has been so shall it be, right?
But the thing is, there’s no way to quantify the concept of critical mass. It’s one of those “you’ll know it when you see it” things that analysts can’t put into their projection models.
So let me share a graphic that I found on Bloomberg over the weekend…
Note the line about California. In the second quarter, EV sales in California were up 70% over last year, and accounted for 22% of all new cars sold.
Now compare those numbers to the U.S. in general. U.S. EV sales were up 48% in the second quarter, which is pretty impressive. Still EVs only account for 7% of all car sales in the U.S.
You can look at this two ways. One, yes, you could let politics cloud your brain, declare that California is stupid and doesn’t represent the country, and assume that EV sales as a percentage of new cars sold in the U.S. will continue to muddle along…
OR, two, you could see this table as a suggestion that critical mass for EV sales is hitting the world – right now. And as a bit of laggard so far, the U.S. is about to see a surge in EV sales.
Buy Buy Buy
I bought some Fisker (NYSE: FSR) call options this morning. The stock is breaking over its 200-day moving average (MA) as of this morning. And as of August 15, 40% of the shares available for trading – 81 million – are sold short. I expect some of those shorts have covered their positions. I also expect many of them still have to buy the stock to close their positions.
Fisker was a $5.60 stock on August 15. It’s $6.57 as I write. I know I’ve said this before, but we could see a pretty nice short squeeze for Fisker shares.
But a short squeeze isn’t the only reason I think you should own shares of Fisker. The company is currently ramping it’s production from 180 cars a day to 300. And over the next few weeks, Fisker will have delivered 5,000 of its EV in Europe and the U.S.
Analysts still expect Fisker to do $2.8 billion in revenue for 2024. The whole company is valued at $2.14 billion right now.
I still like Rivian (NASDAQ: RIVN) too, which I recommended back in January at $17. But at $24, there’s more good news priced into Rivian. At $9 a share, Fisker would still only carry a $3 billion market capitalization, just over expected 2024 revenue. Seems reasonable…
That’s it for me today, care and I’ll talk to you on Wednesday,