Can EROAD benefit from EV takeup?

Let me start by saying I am a fan of EROAD, but do not yet hold stock in the company. I am watching with interest to see certain factors play out. I believe the Australian market to still be very ‘young’ and in the short term all growth for the company will have to continue occurring in either North America or NZ.

I do question growth opportunities locally (within Aus), the 17 September 2020 Investor Presentation advised of a total addressable market within Australia of 2.9 million light commercial vehicles and 560k heavy vehicles. I believe serious considerations need to be made in relation to both the timeframe for achieving this and if it is dependent on other factors. One of which I will be discussing below is the uptake of EV’s and subsequent adoption of a road user charging model by state and territory governments.

Some insight into current state

- Each state and territory is individually responsible for the charging of their light vehicle fleet.

- Heavy vehicle fees are regulated through the National Heavy Vehicle Regulator and passed down to jurisdictions through the Heavy Vehicle National Law (all jurisdictions but WA and NT are part of this).

- A fuel excise is currently applied to all ICE vehicles within Australia. While EV uptake is starting, levels are very low. Regardless - this has started the conversation for both the Feds and State governments for the need to appropriately 'tax' EV's. The most appropriate way to undertake this type of taxation is a road use charge approach (either by infrastructure / congestion charging or through charging by km travelled (distance-based charging)).

- Victorian and South Australian governments have rushed out announcements that they will be introducing a distance-based charge (charge per km travelled) for light EV's. While this would ordinarily be a great opportunity for the likes of EROAD to capitalise - it is currently looking more and more likely that it will be self-reported by the operator, rather than through the use of a device - further, it is strictly limited to EV's of which numbers are very low.

Projected numbers by EROAD - Light vehicles

- EV uptake in Australia is a means to consider holistic reform into the charging of vehicle registration fees for all jurisdictions through a road user charging approach such as distance-based (km travelled). This opportunity is totally dependent on State/Territory governments using technology to report rather than self-regulated reporting by a registered operator of a vehicle.

- All indications currently suggest (VIC and SA approaches) is strictly limited to EV's and through a self-reporting approach -currently no benefit for EROAD to capitalise.

- Holistic reform into charging of light vehicle registration fees is MASSIVE. Each of the eastern states (QLD, NSW, VIC) have millions of vehicles registered - consultation on such an approach and system development would take years. Time is needed to see what and how this plays out.

- to consider the 2.9 million light commercial vehicle opportunity referenced in the investor presentation, it appears it would be a minimum 5 year horizon to begin eventuating in my opinion. This prospect also relies heavily on a number of factors to play out that do not yet appear to be a serious consideration for jurisdictions.

Projected numbers by EROAD - Heavy vehicles

- I believe heavy vehicle projections to be a much brighter prospect. As said above, the National Heavy Vehicle Regulator is responsible for setting fees and charges for majority of jurisdictions. Holistic reform can be achieved on a greater scale. There is also a big emphasis on a Chain of Responsibility with heavy vehicles.

- the National Heavy Vehicle Regulator, the National Transport Commission, the Department of Infrastructure, Transport, Regional Development and Communications have already began running trials for distance-based charging (two extracts below).

- This 560k opportunity for heavy vehicles could be seen as a 3-5 year timeframe (minimum)- with small scale trials underway. (There are many more resources than the above available through government websites includes various consultation papers). For this or any opportunity to be realised, it is imperative for EROAD to be banging on the door to participate in any way possible during trials that are occurring. A foot in the door will be essential to any success hear, as it is also a competitive and crowded space.