Electric vehicle charging company Volta (VLTA 1.86%) went public on Friday after merging with special purpose acquisition corporation Tortoise Acquisition Corp. II. The merger adds one more name to the universe of publicly traded electric vehicle charging stocks, the other ones being ChargePoint (CHPT 0.17%), Blink Charging, and EVgo. ChargePoint has the largest EV charging network in the world. Let's see how Volta compares with it.
ChargePoint's network is bigger
Let's begin by comparing some of the basic operational and financial numbers and projections for the two companies.
|Number of charging stations||1,900+||112,000+|
|2020 Revenue||$20 million||$135 million|
|Expected Revenue 2021||$36 million||$198 million|
|Expected EBITDA break-even year||2023||2024|
Volta is much smaller, but its revenue growth projections are quite aggressive due to its extensive development pipeline. For example, management forecasts 2022 revenue of $108 million, which would amount to 169% growth from its projected 2021 revenue of $36 million. Further, it anticipates that its top line will rise by another 122% in 2023 from 2022. Overall, between 2021 to 2025, Volta expects revenue to grow at a compound annual rate of 108%. By comparison, ChargePoint's projected growth rate comes to an average of 59% for the same period.
In the long-term, Volta expects to generate gross margins of roughly 40%, a figure that's in line with ChargePoint's expectations. Notably, the gross margin numbers for both the companies are projections by respective management teams. ChargePoint went public in February and, like Volta, does not have any track record to help determine whether the management may achieve its projections or not. Its always worth treating such projections with a grain of salt, especially when these look so optimistic.
Different business models
The two companies also differ in terms of their revenue generation strategies. ChargePoint generates revenue mainly from commercial customers such as offices, commercial buildings, hotels, and universities, which typically provide EV charging facilities as a perk to their employees, tenants, or visitors. ChargePoint also focuses on the electrification of large fleets such as those operated by logistics companies or shared mobility providers. And it sells chargers to commercial and residential customers, along with servicing the installed equipment.
By contrast, Volta's chargers double as digital advertising platforms, and the company generates revenue mainly by selling the advertising space. It strategically installs its chargers at places where consumers are already planning to spend some time, like shopping malls, which reduces the inconvenience of charging a vehicle.
And the better buy is...
ChargePoint is trading at an enterprise value of $6.5 billion, and it generated $135 million in sales in 2020. So, its EV-to-sales ratio is around 48. Based on this year's sales forecast of $198 million, that ratio drops to around 33. By comparison, Volta's EV of $1.4 billion and its 2020 sales of $20 million give it an EV-to-sales ratio of 70. Based on its expected sales for 2021 of $36 million, the ratio comes to around 39. So on that valuation metric, ChargePoint looks better.
However, if we consider Volta's sales target of $108 million for 2022, its EV-to-forward-sales ratio improves to around 13. By comparison, ChargePoint's projected revenue of $346 million for 2022 gives it an EV-to-forward-sales ratio of around 19.
But I think Volta's 2022 projection is something of a stretch, and that there's a fair chance the company won't hit it. Based on actual sales already generated, ChargePoint's ratio is stronger, which makes it a better buy today. However, it's also worth noting that an EV-to-sales ratio of 48 is still high for a company that is years away from profitability.
Electric vehicle charging companies face a risk of potentially thin margins, as there is not much differentiation that they can offer through their products. This will impact both ChargePoint and Volta. How successful they eventually turn out to be will depend on their service quality as well as the advertising and commercial partnerships that they secure. The wisest course for investors might be to stand back and watch both of these companies for a while longer to see how they evolve before deciding whether to open a position in either of them.