It's a big couple of weeks for investors interested in renewable energy, hydrogen, and the electric vehicle (EV) industry. Lucid Group just reported earnings on Feb. 28. It is followed by Plug Power (PLUG -1.25%) on March 1, ChargePoint Holdings (CHPT -2.33%) on March 2, and Rivian Automotive on March 10.
Let's look at Plug Power and ChargePoint as they stand now to see what investors should be paying attention to and what needs to happen for both companies' long-term thesis to come to fruition.
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Hydrogen's growing role in electric vehicles
Howard Smith (Plug Power): Plug Power is working hard to build out infrastructure to support a hydrogen economy. The prospects for growing the use of hydrogen as a fuel certainly aren't as advanced as the prospects for the electrification of transportation. That makes Plug Power probably even a higher-risk investment than ChargePoint, but returns could eventually compensate if hydrogen use takes hold.
That's because hydrogen, like battery power, could also be used to lower emissions from the transportation sector while it also has potential for many other industrial uses. In fact, hydrogen is already widely used in industries like steelmaking and chemicals, in addition to its use in making electricity. But for now, hydrogen is mainly produced using fossil fuels, and Plug Power is building green hydrogen facilities, which use hydropower and other renewable sources to produce it through electrolysis.
Global demand for hydrogen was about 90 million metric tons in 2020, according to the International Energy Agency (IEA). But less than 1% of that was made through electrolysis. The agency expects overall demand to rise by more than 150% during this decade with electrolysis technology producing almost 40% of it by 2030.
Plug Power started construction on three new green hydrogen plants in the U.S. in 2021 and expects four plants to be in production by the end of this year. It expects at least six facilities to be operating by the end of 2023 and 13 by the end of 2025. It plans to supply a growing demand for hydrogen fuel cell electric vehicles and other fuel cell applications.
Plug Power isn't just focusing on the United States, either. It has several joint ventures in Europe and Asia to support the growth of infrastructure for hydrogen power. Of course, a successful investment in Plug Power will require the market and related demand to grow and for the company itself to successfully execute. Those are both still big questions. But for exposure to global growth in hydrogen power, Plug Power could have a place in one's portfolio.
ChargePoint is a buy, but questions remain
Daniel Foelber (ChargePoint): ChargePoint is in for its most important year in company history. But first, investors will want to know if the company hit its fiscal 2022 goals or not. Those questions will be answered during the company's fiscal fourth-quarter 2022 earnings call on Wednesday.
Aside from that, ChargePoint needs to prove that it can continue installing more charging stations, grow revenue from existing networked charging systems, and expand its DC fast-charging infrastructure. In the first nine months of fiscal 2022, ChargePoint grew its revenue from networked charging systems by more than 80%, a sign that the company's growth trajectory isn't just centered around installing new stations.
The next big point worth watching is the company's growth in DC fast charging. Level 1 charging stations use the standard electric wall outlet found in a home. Level 2 charging runs at a higher voltage. You've probably seen Level 2 stations on the side of a street or in a parking lot. But both Level 1 and Level 2 stations provide AC electricity that your EV converts into DC. DC fast charging takes it to a whole new level by converting AC to DC in the charging station itself and supplying DC power directly to the electric vehicle.
Like Plug Power, ChargePoint stock is down big from its high as investors grow cautious of growth stocks that are vulnerable to higher interest rates.
Higher interest rates increase development costs, which is a problem for ChargePoint given the company is in revenue-growth mode. I'd be interested to hear management's attitudes on inflation, the supply chain, and if it's going to reel in its growth ambitions and chart a path toward profitability. So far, management has been adamant about growing market share instead of generating positive free cash flow or profitability. That's a strategy that can excel in a low-interest-rate environment. But in a high-interest rate environment, it just leaves the company exposed to further risk.
ChargePoint is bursting with potential and remains my favorite EV charging stock to buy now. But some investors may be better off limiting their exposure to ChargePoint until the company proves its fiscal 2022 numbers came in on target and its guidance for fiscal 2023 forecasts sustained higher growth.
Two high-risk options worth considering now
Plug Power and ChargePoint have fallen from grace as Wall Street takes a sledgehammer to unprofitable growth stocks in favor of industry-leading businesses in established industries. However, investors looking to build a diversified portfolio with exposure to the hydrogen and the EV industry could consider adding both stocks as long as they understand that the long-term investment thesis for both companies will take several years to play out.
