On Thursday, the U.S. stock market suffered one of its worst days of 2022, with all three major indices down 1.8% to 2.9% on the day. Share prices of electric vehicle (EV) charging infrastructure company ChargePoint Holdings (CHPT -1.43%), as well as up-and-coming automakers Lucid Group (LCID 0.83%) and Rivian Automotive (RIVN 1.03%) fell on Thursday and are now down over 25% year to date.
Given that all three stocks are down over 50% from their 52-week highs, is now the time to buy the dip, or could there be more pain in store?
Image source: Getty Images.
Charging networks will serve all EV brands
Howard Smith (ChargePoint): Comparing and contrasting an investment in EV charging leader ChargePoint with one in EV maker start-ups Lucid and Rivian is an interesting exercise. While they are in the same general sector, there are very different risks associated with charging companies and electric car makers.
There are, however, similarities as well. Both types of businesses need to grow in scale to become profitable. But that is where the risk profile differs -- making an investment in ChargePoint preferable. ChargePoint is already on a growth path in both North America and Europe that has shown it can successfully grow its footprint. Revenue from networked charging systems has jumped more than 80% in the first nine months of calendar year 2021, compared to the same period in 2020.
Turning that growth into net earnings is the next step for the company. But that puts it ahead of where start-ups like Lucid and Rivian stand at this point. Both have yet to prove they can successfully scale their operations. And ChargePoint is doing so while it is increasing its non-GAAP (adjusted) gross margin, which it highlighted in its investor presentation last month.
Image source: ChargePoint Holdings.
An investment in ChargePoint is full of risks. Even if it's the leading charging network company, there are scenarios where that won't turn into bottom-line profitability. But for those looking to invest in the EV sector, without the added risk of which manufacturers will succeed in the long term, ChargePoint looks to be the top choice for charging networks.
Lucid and Rivian are on sale, but risks remain
Daniel Foelber (Lucid and Rivian): Howard makes a compelling case for ChargePoint. While I agree that ChargePoint is by far the best EV charging stock to buy now, I would argue that equal parts of Lucid stock and Rivian stock are a more attractive option right now.
For starters, Lucid and Rivian now have a combined market cap of roughly $106 billion, which is much lower than their combined peak market cap of around $245 billion.
LCID Market Cap data by YCharts
However, to justify even their now-lower market caps, both companies will have to chart a path toward profitability. Unfortunately, it's unlikely we'll see either company become profitable for a few years. But in the meantime, both companies have enough cash on their balance sheets to fund their short- to medium-term growth.
Rivian finished the third quarter of 2021 with $5.2 billion in cash and cash equivalents on its balance sheet. In its Q3 2021 shareholder letter, the company included a reconciliation to this cash position that factored in $13.5 billion in net proceeds from its initial public offering (IPO) and $1.2 billion in cash from debt issuance. All told, the adjusted net cash position is $19.9 billion -- which is nothing short of massive for a company with a $58 billion market cap.
Meanwhile, Lucid finished Q3 2021 with $4.8 billion in cash on its balance sheet but then proceeded to raise $1.75 billion from a convertible senior note offering due in 2026. The transaction looks brilliant in hindsight because the initial conversion rate prices Lucid stock at $54.78 per share, which is nearly double Lucid's current stock price.
In short, Lucid and Rivian are unlikely to depend on capital markets for cash for at least the next year, which is an advantage in a rising interest rate environment. Both companies also have impressive technology, as evidenced by Lucid winning the 2022 MotorTrend Car of the Year award and Rivian winning the MotorTrend Truck of the Year award.
Given the sell-off in Lucid and Rivian, now could be a good time to open a starter position in either company. However, for investors who need more confidence, it could be worth waiting until both companies report their fourth-quarter 2021 and full-year results -- which for Lucid is Feb. 28 and for Rivian is March 10. These reports should provide a better look at each electric car company's 2022 plans and financial position.
A compelling but risky investment
ChargePoint, Lucid, and Rivian are all down big from their highs. However, it's important to remember that all three companies are years away from consistent profitability. Companies whose valuations depend on the prospect of future cash flows suffer in an inflationary environment. Therefore, all three companies could face myriad headwinds in the short term due to factors outside of their control.
