ERoad (ASX:ERD): About to benefit from a major tax reform forthcoming in New Zealand (& maybe Australia too)

You may loathe the regulations on our roads and some companies that profit from them like Transurban, but ERoad (ASX:ERD) is a particularly unique company. And the reason we like it is because it could benefit from a new road regulation (specifically vehicle taxation) that is long overdue, happening in New Zealand and may in Australia (eventually).

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Eroad

Eroad began in Auckland in 2000 and is dual listed on both sides of the Tasman, entering the ASX in September 2020 as a Foreign Entity subject to the rules of its own exchange ahead of the ASX.

It offers hardware and software delivered through in-vehicle devices, sensors and GPS systems amongst other devices. ERoad designs and either makes or sources them, then installs them in vehicles (both individuals and entire fleets). It charges ongoing subscription fees as well as fees for regulator compliance and certain other value-added services such as driver safety and route optimisation.

The company made NZ$194.4m in FY25 (up 7%) and $16m in statutory cash flow (NZ$23.6m on an underlying basis. It has guided to NZ$205m in revenue for FY26 and NZ$188m of Annualised Recurring Revenue. It was only 2 years ago (in June 2023) that Constellation Software made a NZ$147m takeover bid – now the company is capitalised at more than 3 times that.

One of ERoad’s standout existing products is its electronic RUC (Road User Charges) system: EROAD has been running a GPS/cellular network‑wide system in NZ for heavy and diesel vehicles and others required under the RUC (Road User Charge) regime. This brings us to where the opportunity is with this one.

New Zealand is reforming its taxes (on vehicles)

Currently in Australia, fuel excise duty is paid on internal combustion engine vehicles but electric vehicles pay nothing of the sort. There is an argument that EV owners should pay something as they are effectively being subsidised by non-EV owners. But others argue taxes could discourage the uptake of EVs just at the time it should be encouraged.

Now, New Zealand was more ahead of its time and required vehicles using non-petrol fuels to pay Road User Charges. Before April 2024, light EVs (under 3.5 tonnes) were exempt, along with plug-in hybrids. Even so, some kept e-distance recording voluntary, and this was where ERoad was making money. If you had to record distance for other reasons and didn’t want to rely on paper, this was a way.

But since April 2024, the exemption for light EVs was lifted, and there will be a gradual transition to a RUC-based system for all vehicles. It will be a gradual in the sense that full transition will be possible around 2027 and some exemptions will officially continue for heavy EVs until the end of 2025.

In our view, this could be a good growth accelerator for the company. Keep in mind, ERoad is hardly starting from scratch; it already has the system and large fleets that already use it. And if light vehicles are brought into eRUC, that adds a large new addressable market (~3.5 million light vehicles) beyond the existing RUC payers. The more vehicles means the more fees payable and more revenue for ERoad.

What if Australia follows suit?

ERoad makes under 10% of its revenue in Australia but is witnessing growth there in its ARR for Australia. The company is also in the US, but we would put that market aside because it would be difficult to penetrate the market to a big degree given that it is so hard to get any reform done, especially on tax – except in maybe a handful of states.

But we would imagine it could be more feasible for an RUC-type regime to occur in Australia, either federally or at a state level (and there are just 6 states and two territories). The challenge would be setting a regime that could be agreed upon and how to ramp it up (i.e. potentially starting with just EVs before transitioning to combustion vehicles later on). With 20 million vehicles, however, there’s no questioning that there’s an opportunity.

Victoria and New South Wales have already trialled or implemented limited road-user charges for electric vehicles (e.g., per-kilometre charges). The federal government has talked about long-term funding pressures from declining fuel excise, but hasn’t proposed full RUC reform yet that could offset. Industry discussions about modernising road funding are ongoing.

While politically, it’s sensitive, it is surely as low a risk to introduce it now as it ever will be, given Labor has such a large majority, an infighting opposition and such a distance to the next election. Then again, it is easier to rely on bracket creep.

Most crucially for ERoad, its experience in New Zealand gives it a strong first-mover advantage. Hypothetically, if 10% of Australian vehicles adopted an RUC model with an average subscription pricing of NZ$40 per month, it could make NZ$100m (A$115m). If just 1%, then NZ$10m (A$15m) a year.

Conclusion

ERoad has built a nice business for itself and is poised to benefit from road user tax reform in New Zealand that was overdue there, and is in Australia too.