The euphoria surrounding electric vehicles (EVs) has boiled over from vehicle manufacturers to EV charging stocks as well. Blink Charging (NASDAQ:BLNK) stock surged around 2,000% last year. Similarly, shares of Switchback Energy Acquisition Corporation, an energy sector-focused special purpose acquisition company (SPAC), surged 220% in 2020 after it announced a merger with ChargePoint (NYSE:CHPT) in September. The merger was completed in February.
Another SPAC that's merging with an EV charging company is Climate Change Crisis Real Impact I Acquisition Corporation (NYSE:CLII). The stock jumped 65% on the day it announced merger with EVgo, expected to close in this quarter. Similarly, shares of TPG Pace Beneficial Finance (NYSE:TPGY) more than doubled on the day the SPAC announced its merger with EVBox, expected to close in June. Likewise, shares of SPAC Tortoise Acquisition II (NYSE:SNPR) rocketed more than 30% after it announced a merger with Volta. The merger is expected to complete in this quarter.
So there's a lot of hype surrounding EV charging stocks, many of which are using the SPAC route to go public. But is the enthusiasm justified, or are these stocks overhyped? Let's find out.
A fast-growing market
Investor excitement for these stocks is certainly not baseless. According to the International Energy Agency (IEA), the number of electric vehicles on the road globally, including plug-in hybrid EVs, is expected to rise from less than 10 million in 2019 to 140 million by 2030. This number could rise to 245 million if governments worldwide cooperate and adopt policies advancing clean energy. To this end, automakers and battery manufacturers have committed investments of over $300 billion in bringing out new EV models and increasing production capacity.
Of course, more electric chargers would be needed to power the growing number of EVs. Global investment in EV charging infrastructure is expected to reach around $387 billion by 2040. The IEA estimates a six-fold increase in electricity demand from EVs by 2030. Notably, in 2019 as many as 6.5 million chargers, out of a total of 7.3 million EV chargers globally, were private. Yet public charging is expected to play a key role in the increased adoption of EVs. As much as one-third of the energy demand from EVs may go to public charging by 2030, according to some estimates.
President Joe Biden's support, including plans of installing 500,000 public charging stations by 2030, has added to the enthusiasm for EV charging stocks.
Can EV charging companies become profitable?
Although the excitement is understandable, in some cases it might have been overblown. Before getting in, investors need to consider that none of the EV charging companies are profitable right now. That's because developing charging infrastructure is capital intensive. The companies' revenue should grow over the years as the number of EVs rises. Still, it will be several years before these companies become profitable, if at all. That's because it is difficult to generate big profits by selling electricity.
Moreover, preference for home charging may mean limited demand, and margins, for public chargers. Charging networks of EV makers, such as Tesla's own network, may also further constrain the demand for common public chargers.
For companies that have not yet merged with their respective SPACs, it might be too early to decide a possible winner. Climate Change Crisis Real Impact I Acquisition Corporation, TPG Pace Beneficial Finance, and Tortoise Acquisition II are more than 40% off their 2021 highs. Though the mergers are pending, the SPAC prices are moving based on expectations for their respective EV charging companies. Notably, with changed valuations, there is a risk that some of these deals may not complete. The hype surrounding these SPACs, thus, looks overblown.
The best EV charging stock
Among the publicly listed companies, ChargePoint looks better than Blink Charging. With $146 million in annual revenue, ChargePoint has a market capitalization of around $6 billion. That makes more sense than Blink Charging's $1.1 billion market capitalization with just $6.2 million in annual sales.
Blink Charging hasn't provided an expected EBITDA breakeven year, while ChargePoint expects to generate positive adjusted EBITDA by 2024.
With more than 132,000 charging points in North America and Europe, ChargePoint already has a strong network and reach. The company's revenue for the full-year fiscal 2021 (ending on January 31) exceeded its guidance, which lends some credibility to its guidance of EBITDA breakeven by 2024. Prior to the impact of COVID-19, ChargePoint's revenue grew 60% in 2019. The company expects to grow revenue at that rate, on average, through 2026.
Another key factor that differentiates ChargePoint from other EV charging providers is its focus on commercial customers. The company's revenues are not tied to electricity or utilization of its station. Instead, it generates revenue from, say, a corporate client who wants to give free charging as a perk to its employees. ChargePoint has already secured more than 4,000 commercial customers. However, the company is yet to prove the viability of its business model.
So, even though ChargePoint looks better than other EV charging stocks right now, it too faces risks. Conservative investors might want to let this story play out before jumping in.