Not long ago, investors looking for electric vehicle (EV) charging stocks did not have many options. That changed with ChargePoint Holdings' (CHPT -6.97%) public listing in March this year. After ChargePoint, two more EV charging companies have gone public: EVgo (EVGO 0.50%) in July and Volta (VLTA) in September. These listings added three more names to the previously available investable universe of just one EV charging company, Blink Charging (BLNK -0.59%) which went public in 2018.
Over the past three months, EV charging stocks have outperformed the broader market. In particular, EVgo's stock price is up nearly 74% while Blink Charging's stock price has risen 40%. Those are some fast and impressive gains, but consider that Blink is up 2,400% from the less than $2 per share that the stock was valued at two years ago.
So, the stocks have risen to this point, but can EV charging stocks generate similar returns in the future? Let's see if it makes sense to buy EV charging stocks right now, and if so, which one looks best.
Enormous growth potential
EV charging stocks are getting so much attention from investors right now because they see the immense growth potential for charging infrastructure. President Joe Biden this year announced an ambitious goal that at least 50% of all vehicles sold in the U.S. in 2030 be EVs. To fuel all these EVs, the country will need a robust public charging infrastructure. The new infrastructure funding package just signed into law provides $7.5 billion for investment in EV charging stations over the next five years.
Right now, there are more than 100,000 publicly accessible EV chargers in the U.S. But the U.S. is still well behind China and many European countries when it comes to available EV chargers. For perspective, the total number of public EV chargers in China is roughly eight times the number in the U.S. So there is solid policy support at a time when there is a clear need of charging infrastructure. That should benefit EV charging companies.
Challenges facing EV charging companies
With so many factors working in their favor, it seems EV charging companies must be doing well. But that depends on how you look at their operations. All of the EV charging companies mentioned so far are posting earnings losses right now. ChargePoint reported a loss of $40.4 million in its fiscal quarter ended July 31. The company expects to be breakeven on earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024. Similarly, EVgo posted an operating loss of $25.9 million in the third quarter, while Volta's net loss for the quarter stood at $43 million. Blink Charging reported a net loss of $15.3 million in the third quarter.
ChargePoint went public this year, but the company was founded in 2007 and has been building out its operations for some time now. Both ChargePoint and Blink Charging have operating histories of more than a decade. And both continue to post losses. This is partly indicative of the large upfront expense involved in developing this infrastructure. But it's also indicative of some challenges that EV charging companies face.
A competitive segment
While ChargePoint and Blink Charging were waiting for more vehicles to come to their networks, Tesla developed its own charging network, taking away a sizable chunk of potential traffic from these networks. Most other legacy and new EV makers say they don't plan to develop their own charging networks. Instead, EV makers are partnering with EV charging companies to use their current networks, as well as to develop infrastructure for their use in the future. For example, General Motors has partnered with EVgo to build out 3,250 charging stalls through 2025.
EV charging companies are adopting different strategies to generate revenue. ChargePoint partners with commercial customers, which offer free charging to their customers and employees. It also targets fleet customers. Volta generates revenue primarily by selling advertising space on the digital screens of its chargers. EVgo primarily focuses only on fast chargers, which command higher charging fees. It might be too early to tell which of these strategies will eventually succeed.
Though the EV charging companies are unprofitable, their stocks are still trading at extremely high valuations. ChargePoint stock is trading at a price-to-sales (P/S) ratio of nearly 45 while Blink Charging stock is trading at a P/S of around 110.
Similarly, based on the midpoint of Volta's estimated revenue range of $32 million to $36 million for 2021, its stock's P/S comes to around 52. By comparison, EVgo expects to generate $21 million in revenue in 2021, based on the midpoint of its guidance range. Using that, its price-to-sales ratio comes to 185.
So, both Blink and EVgo stocks are trading at relatively much higher P/S ratios compared to ChargePoint and Volta. Based solely on valuation, ChargePoint stock looks most attractive among the EV charging stocks right now.
The EV charging space is evolving
It is important to note that due to the sheer uncertainty in this evolving space, and the fact that EV charging companies are years away from profitability, investing in their stocks entails significant risks.
Having said that, as the number of electric vehicles rises, EV charging companies should be in a better position to achieve profitability. Though the road ahead seems bumpy, the long-term outlook for these companies does appear positive.