Few industries are hotter, wilder, and pique the imagination more than the electric car industry. From wild stock moves in Lucid Group and Nio, to Rivian's IPO, to general market volatility, the EV industry is bursting with potential, but is also riddled with uncertainty.
By comparison, the EV charging industry isn't dependent on a particular automaker doing well. Rather, it's all about which company can scale -- and one will eventually profit off of the growing need for EV charging. ChargePoint Holdings (CHPT 3.27%), Volta (VLTA), and EVgo (EVGO 4.56%) are three industry players worth following. Let's determine if ChargePoint or a 50/50 split of Volta and EVgo is the better buy today.
Charging station growth just hit warp speed
Daniel Foelber (ChargePoint Holdings): ChargePoint's long-term goal is to grow its internationally integrated EV ecosystem that supports commercial network charging, fleet charging, and at-home charging, and generates revenue from hardware and subscription software and services. While it's true it does all of these things now, 89% of Q3 fiscal year 2022 (FY22) revenue came from North America and 71% of its nine months ended Oct. 31 2021 revenue came from networked charging systems. So for now, its business remains heavily concentrated on selling hardware to companies in the U.S. What's more, revenue from its networked charging systems is growing a lot faster than subscription revenue. Again, looking at the nine months ended Oct. 31 2021, subscription revenue grew just 23% compared to the same period last year, whereas networked charging system revenue grew 81%.
Skeptics could look at ChargePoint's top-line growth and negative earnings and argue that the company is too reliant on hardware. Digging deeper, it's clear to see that subscriptions play a key part in ChargePoint's business, yet it should be growing at a lower rate than hardware. That's because ChargePoint's residential solutions don't have the same software capabilities as its commercial units. Moreover, subscriptions and software make up a lower share of total revenue when ChargePoint sells its more expensive DC fast-charging stations. DC charging, which is faster and more effective for users on the go than traditional Level 2 charging, has made up a large share of the chargers that ChargePoint has put into service over the last few months. For example, ChargePoint had just over 2,200 DC ports in June. Today, it has over 11,000 DC ports and 163,000 total ports. For comparison, consider that Tesla has a Supercharger network of over 30,000 stations. In this vein, it wouldn't be unrealistic to see ChargePoint eventually become the North American market leader in both Level 2 charging and DC fast charging.
Howard Smith (Volta and EVgo): It's true that ChargePoint is the big dog among EV charging companies in North America right now, and scale should be an advantage. But the sector is still young and full of uncertainty, so it makes sense to diversify. Volta and EVgo don't just add diversity in names -- they each add a different approach.
Volta places its charging ports to fit drivers' daily routines "where consumers live, work, shop, and play." The aim is to benefit local commercial businesses as well as provide convenient charging locations. Its stations include large monitors where local businesses can advertise in places where customers are about to shop. That can help grow sales for the business, and brings another stream of income to Volta.
EVgo's focus is on DC fast charging, and since 2019, its network is powered by 100% renewable energy. It also partners with General Motors in a charger deployment program. The companies plan to have a total of 3,250 DC fast charging ports deployed for GM by the end of 2025. It also has a fleet arrangement with GM and other partners.
In addition to giving investors varied opportunities for future growth, both Volta and EVgo are currently trading at lower price-to-sales (P/S) multiples than ChargePoint. The table below shows P/S ratios for each based on recent share prices and the midpoint of this year's revenue guidance provided by each company.
|2021 Revenue Estimate||$237.5 million||$34 million||$21 million|
In a fledgling industry like EV charging, it makes sense to not just bet on one name. Volta and EVgo have different approaches to their businesses and bring more diversity to an investor wanting exposure. With both trading at P/S ratios well below ChargePoint's, splitting an investment between both would be a better approach at this time.
The industry needs time to reach its potential
You can debate ChargePoint or a 50/50 split of Volta and EVgo, but there's no denying the potential of the EV industry, particularly through EV charging stocks. Like most fledgling industries, reaching a significant scale to achieve profitability will take time. But given the goals set by both up-and-coming EV automakers, as well as investments pledged by legacy automakers, it seems that the transition from the internal combustion engine to the electric motor isn't just accelerating -- it's inevitable.