Nikola (NKLA -1.95%) and ChargePoint (CHPT -8.13%) both do business in the electric vehicle (EV) sector, and both went public by merging with special purpose acquisition companies (SPACs) during the market fervor of the meme and growth stock rally. Nikola, which develops battery-powered and hydrogen fuel cell semi-trucks, made its public debut in June 2020. ChargePoint, a leading builder of EV charging networks, arrived in March 2021.

Both stocks initially attracted a lot of attention, but they lost their luster as their growth cooled off and rising interest rates popped their bubbly valuations. Both stocks are now down by more than 90% from their market debuts. Let's consider why these two SPAC-backed EV plays ran out of juice -- and if daring investors should consider either stock to be a tempting turnaround play.

A person checks a smartphone while charging an electric vehicle.

Image source: Getty Images.

Nikola's days could be numbered

In its pre-merger presentation, Nikola predicted it would be able to deliver 1,200 battery-electric vehicles (BEVs) in 2022 and 3,500 BEVs in 2023. It actually only delivered 131 BEVs in 2022 and 76 BEVs in the first half of 2023. A series of battery-related fires forced it to halt its sales and recall most of those vehicles in the third quarter of this year, and it doesn't plan to resume BEV shipments until the first quarter of 2024.

Founder and former CEO Trevor Milton was also convicted of securities and wire fraud in October 2022 for deceiving investors with the company's overly ambitious targets, and the company recently brought on its fourth CEO in as many years. Its latest CFO also recently tendered her resignation after spending less than a year in the position.

As Nikola's core business stalled out, it doubled its outstanding share count. Management noted that those secondary stock sales were necessary to raise more cash to keep the business going, but they severely diluted prior investors. The company has also been aggressively cutting costs, divesting itself of non-core assets, and even suing Milton -- all parts of its effort to shore up its liquidity and stabilize its losses. However, Nikola insists it can resume its BEV shipments as it ramps up its production of hydrogen fuel cell electric vehicles (FCEVs) in 2024 and beyond.

But for now, analysts expect Nikola to only generate $40 million in revenue this year while racking up a massive net loss of $909 million. That's a bleak situation for a company that ended the third quarter with just $112 million in cash.

ChargePoint is running out of power

ChargePoint is the largest builder of EV charging stations in North America and Europe. Its revenue rose 65% in its fiscal 2022 (which ended in January 2022) and surged by 94% to $468 million in its fiscal 2023. That actually exceeded its pre-merger target for generating $346 million in revenue in fiscal 2023 -- but its growth looks like it's plateauing in fiscal 2024.

ChargePoint's revenue rose 48% year over year in the first half of fiscal 2024, but management is guiding for revenue to decline by 10% to 14% year over year in the third quarter as it grapples with soft demand for new charging stations in North America and Europe. That would be its first quarterly revenue decline since its public debut.

Analysts now expect that for the full fiscal year, its revenue will only rise 19% to $559 million -- which would miss its pre-merger target of $602 million. They also expect its net loss to widen from $266 million to $342 million. That's also a wobbly position for a company that ended its latest quarter with just $233 million in cash and equivalents on its books.

ChargePoint's longtime CEO and CFO also recently stepped down without offering any clear explanations as to why, and the company warned that its adjusted gross margin would turn negative in the third quarter as it takes a big writedown on its unsold inventories.

The valuations and verdict

Both of these companies are in trouble, but only one is trading at a valuation that properly reflects its challenges. Nikola still has a high price-to-sales ratio of 21, but ChargePoint seems more reasonably valued at less than 2 times trailing sales.

I wouldn't consider either of these out-of-favor EV stocks to be a turnaround play yet. But if I had to choose one over the other, I'd definitely pick ChargePoint because its core business is more stable, it's generating higher revenue, it's swapping out its leaders less frequently, it isn't severely diluting its shareholders, and its stock looks a lot cheaper.