Royal Dutch Shell to acquire Ubitricity
By: Ben Willert, Charlotte Scheideler, Supash Neaupane
On 25th January 2021 Royal Dutch Shell plc - the Anglo Dutch oil giant - agreed a deal to acquire 100% German EV charging network Ubitricity for an undisclosed amount. This deal is in line Shells current philosophy of investing in alternative energy sources as the inevitable transition away from fossil fuels begins.
The primary rationale behind this deal is for Shell to expand their EV charging network, which currently consists of around 1,000 superfast charging points in various locations. The acquisition would expand the amount of charging stations in their network by 370%. This helps the company overtake their rivals BP and Total, who own the 2nd and 5th largest charging networks respectively. Shell hopes that Ubitricity's charging solution using existing infrastructure (such as lampposts) will encourage more people to switch to electric vehicles. This deal puts Shell in a powerful position in an increasingly competitive market as the ban on petrol/diesel cars in 2030 looms. However, concerns remain about aggressively buying assets in alternative fuels, especially with the importance of fossil fuels in Shell's core business being highlighted by the COVID-19 pandemic.
Company Details: Royal Dutch Shell
Royal Dutch Shell is a multinational energy and petrochemical company, based in the Netherlands. With a revenue of $263.1 billion (TTM), the company has managed to become the 7th largest company in the world in terms of revenue. It has over 40,000 forecourt locations (with an additional 10,000 partner sites) spread across more than 70 countries worldwide.
The company engages in the exploration, transportation, production and refining of crude oil and natural gas globally from sources like tight rock, shale and coal formations. It is also involved in the manufacturing, marketing and selling lubricants and other chemicals. However, currently the company is taking the approach to build a more sustainable future. The company is aiming to reshape the organisation by transitioning into a net-zero emission business with a “customer-first-strategy”. This strategy follows the customer demand into markets that produce cleaner products and stronger services such as low-carbon power sources (wind and solar energy) and new fuels for transport (biofuels and hydrogen). Through this strategy the company hopes to bring value to the shareholders, customers and customers by driving down the carbon emissions and producing products with the lowest environmental impact. Merging with companies like Ubitricity further supports this aim and the expansion into the EV charging market.
Founded in 1907, headquartered in The Hague, Netherlands.
CEO: Ben van Beurden
Number of employees: 86,000
Market Cap: $151.58bn (as of February 23rd 2021)
LTM Revenue: $327.40bn
LTM EBITDA: $27,730bn
LTM EV/Revenue: 1,34x
LTM EV/EBITDA: 8,2x
Company Details: Ubitricity
Ubitricity, which stands for ubiquitous electricity, is a leading German company providing on-street EV charging stations. With more than 2,700 charge points across the UK and a growing presence across Germany and France, Ubitricity progressively became one of Europe’s largest EV charging companies. Ubitricity’s strategy lies in providing “electric mobility for everyone, everywhere”. To this end, Ubitricity’s aim is to integrate EV charging points in existing street infrastructure such as lamp posts, which permits to give a colossal access to charging facilities in a cost-effective manner. This highly promising specialty offered by the German startup has proven to be effective and Ubitricity is now set to incorporate Shell’s infrastructure to grow further across Europe and abroad.
Founded in 2008 , headquartered in Berlin, Germany.
CEO: Lex Hartman
Number of employees: 70
LTM Revenue: $15.8M
Projections and assumptions
Shell’s acquisition plays on the fact that investing in EV charging is a strong way to mitigate the consequences of the gradual decline in use of internal combustion engines. This is supported firstly by political legislation which aims to accelerate the transition to EVs, enhancing the strategic importance of the acquisition. Governmental support in the UK typifies this- from 2030 onwards, the sale of petrol and diesel cars in the UK will be banned, and a grant of £582m is offering EV buyers up to £3000 off their vehicle purchases.
Given very strong EV sales growth across Europe, partially pushed by the increase in governmental support, the demand for EV charging is growing so rapidly that Europe’s rollout of vehicle charging points is not keeping up with demand. There is an expanding gap in the market which Shell can take advantage of through this inorganic growth. The deal increases the size of Shell’s network in the UK massively, by over 13 times. Shell’s instant growth here is complemented well by its pre-existing ownership of NewMotion, which grants customers access to 17 different EV charging networks This coherent ecosystem effectively integrates the ubitricity’s large network with that of Shell Recharge’s.
The acquisition adds huge value to Shell’s portfolio of public UK EV charging services. The deal diversifies the range of charging options available. Currently, Shell Recharge only operates in its own forecourts, limiting itself in where it can set up charging points- for example, it cannot reach potential customers in densely populated areas where forecourts aren’t built. Acquiring ubitricity helps to alleviate this problem because of the company’s focus on integrating charging capabilities into street infrastructure. This allows Shell to gain a greater foothold in major cities where demand for EV charging is currently more concentrated- over 26% of all charging points in the UK are in Greater London.
The acquisition of one of Europe’s largest on-street EV charging networks marks Shell’s diversification of their energy portfolio by expanding into low-carbon transport. Continued pressure to reduce the company’s carbon intensity and take climate action facilitated the enlargement of their EV charging portfolio. The deal is also in line with recent restructuring and a new strategic outlook amidst demands of investors and more climate-focussed regulations. The addition of public on-street charging options, which are integrated into existing infrastructure, supports Shell’s current charging points and helps customers looking to switch to electric vehicles. (With around 2700 charging points across the UK, and around 1500 across Germany and France, Ubitricity adds to over 1000 existing and over 185,000 third-party EV charging points of Shell). The full range of charging options is supposed to make charging more accessible, particularly in larger cities with limited access to off-street parking, which will be a key factor for those living in cities who are looking to transition to EV ownership.
The success of this deal will depend on the willingness of consumers to switch away from vehicles powered by internal combustion engines towards electric equivalents. The 2030 ban on the sale of new petrol and diesel vehicles will certainly help, but electric vehicles need to be more affordable to accelerate this transition. Sales of new electric vehicles are still dwarfed by their petrol powered counterparts, but there are encouraging signs - there was a 186% increase in sales in 2020. This trend is likely to hold for the decade, barring any complications due to the pandemic.
For this deal to be a success, Shell's needs to expand their EV network to rural areas. Ubitricity unique charging solution using existing infrastructure such as lampposts is far easier to implement in large cities such as London. However, the availability of strong public transport services means that car ownership is not very important in cities. Households in rural and suburban areas are reliant on cars to get to work, dropping children off to school and to access healthcare services. It will be very tricky to convince people in these rural areas to buy electric, especially when EV infrastructure is not as reliable as petrol/diesel.
Competition from within alternative energy sources also raises question marks about this deal. Shell have spent a considerable amount of money doing research and development for biofuels and hydrogen fuel cells. The company currently has 3 "green" hydrogen hubs in the Netherlands, Germany and China. Countries such as South Korea and Japan are also heavily betting on hydrogen being the next energy source for cars, with manufacturers such as KIA and Toyota already producing mass-market hydrogen-powered cars. The company itself has said in a report in late 2020, quoting:
"We believe liquid hydrogen to be advantaged over other potential zero-emissions fuels for shipping, therefore giving a higher likelihood of success."
Many of Shell's top officials are also growing concerned about the shift in focus away from their traditional businesses in oil and gas. The plummeting demand for oil during the start of the COVID-19 pandemic affected the company badly. They had cut dividends to shareholders for the first time since WW2, and have had to massively reduce spending. The company had to set up a new initiative - dubbed Project Reshape - to cover costs. Around 9,000 jobs will be lost - 10% of their entire workforce - in order to meet their $2.5 billion saving goal. The problem is that if the company does not diversify away from fossil fuels, they will face backlash from governments and environmental groups which will hurt the company's reputation. However, heavy investment into alternative sources is not profitable in the short run. Shell's rivals have been more aggressive than them in reducing their reliance on fossil fuels for their revenue, which is likely to put pressure on Shell to do the same.