With the number of electric vehicles on the roads increasing, the need for EV charging infrastructure looks obvious. What isn't as clear, though, is which players are best suited to develop and maintain this infrastructure. Still, prices for EV charging stocks have risen significantly in the last year. ChargePoint Holdings (CHPT 7.72%) stock is up 130% in a year, while Blink Charging (BLNK 6.85%) stock is up 212% over the same time frame. Notably, both stocks are more than 40% off their high prices in 2021.
While the EV charging ecosystem continues to evolve, let's see if buying EV charging stocks makes sense right now.
Challenges facing EV charging companies
Roughly 80% of all EV charging is done at home. Yet the need for a well-developed charging network cannot be overemphasized. Electric cars have been around for years, but an absence of charging infrastructure has severely restricted their growth. People wouldn't buy electric cars if they fear getting stuck somewhere with no chargers around.
Tesla (TSLA 7.67%) recognized this and developed its own network of chargers. Today, the company has more than 25,000 chargers at around 2,700 stations, giving it one of the largest fast-charging networks in the world. By comparison, EVgo (EVGO 5.26%), which boasts the country's largest public fast-charging network, has around 800 fast-charging stations. Volkswagen's subsidiary Electrify America has 647 fast-charging stations across the U.S., and it aims to more than double the number of charging stations by 2025.
So, we have home charging and networks run by EV companies giving stiff competition to EV charging providers. What makes matters worse for EV charging companies is that they haven't yet figured out how to become profitable, as it's difficult to generate profits only by selling electricity.
What's more, some recent developments add to investors' concerns. In May, TPG Pace Beneficial Finance (TPGY) suggested that its planned merger with leading EV charging company EVBox is doubtful. EVBox has a strong presence in Europe, and is looking to expand in the U.S.
Meanwhile, Tortoise Acquisition Corp. II (SNPR), the SPAC (special purpose acquisition company) planning to acquire EV charging company Volta Charging, recently filed an updated presentation with the Securities and Exchange Commission; it puts the expected closing of its merger with Volta in the third quarter, though the merger was originally planned to close in Q2. The new filing also pushes expected EBITDA (earnings before interest, taxes, depreciation, and amortization) breakeven for Volta to 2023, from 2022 (as suggested in an earlier presentation). To be fair, the changes in expected EBITDA numbers aren't huge for 2022 -- just $2 million. But the EBITDA forecast for 2021 is now negative $38 million, worse than its earlier negative $30 million.
Speaking of projections, ChargePoint expects 37% revenue growth for its fiscal year ending January 31, 2022, lower than the 46% it expected in December last year.
While none of these developments is too concerning in isolation, together they show the various challenges and risks that EV charging companies face.
EV charging companies' innovative business models
Though the factors discussed above make EV charging companies look particularly risky, they still need to be credited for trying to make their way in an emerging market. Volta's chargers offer digital space to businesses for advertising. Volta generates revenue by selling the advertising space, while it provides free charging. Its chargers are strategically located at places such as shopping malls where consumers already spend time, so they can recharge while they shop.
ChargePoint mainly focuses on commercial customers such as workplaces and universities, hotels, and commercial properties, which provide EV charging facility to attract employees, visitors, or tenants and customers. Its second focus area is electrification of large fleets; it serves logistics companies such as FedEx as well as shared-mobility providers such as Lyft and Uber Technologies.
Are EV charging stocks attractive?
Electric vehicle chargers should find increasing demand, as the number of EVs grows. However, with the high level of competition, the margins for companies will likely be thin -- when they start generating positive margins. It's also too early to decide which of the several EV charging providers would ultimately hit profitability.
Investors should note the risks before deciding to buy EV charging stocks. Those eager to invest in EVs might find better opportunities elsewhere.