A Pure-Play Electric Vehicle Charging Stock
About three months ago, we published an article which talked about “How SPACs Reward Everyone Except Retail Investors.” Whenever a special purpose acquisition company (SPAC) announces their intention to merge with a startup, shares usually soar on the news alone. And that’s not the only problem. We warned you about all the electric vehicle SPACs offering little more than non-binding letters of intent and grandiose plans. The recent announcement that Nikola Motors is being investigated by the DOJ hardly comes as a surprise.
In that same article, we talked about how one might buy shares in certain SPACs and liquidate them once the hype started. We actually ate our own dogfood on the trade we suggested – Social Capital Hedosophia Holdings Corp. III (IPOC) and Social Capital Hedosophia Holdings Corp. II (IPOB) long – and last week, we reaped the benefits. When the announcement was made that Opendoor would merge with IPOB, shares soared +70% netting us upwards of +50% on our position in about 76 days. As much as we advise our readers against speculating, we couldn’t help but profit a bit from the stupidity of the Robinhood weekday warriors. (We will not make similar trades going forward because one of these days, the SPAC music will stop.)
The EV Charging Bull Thesis
Back in 2018, we wrote about The World’s Largest Electric Vehicle Charging Network which happens to be ChargePoint. At that time, the company had around 60,000 charging stations, some of which were manufactured by different hardware providers. In an article last summer titled “Investing in Public Electric Vehicle Charging Networks,” we looked at the bigger picture, noting that $55 billion of investments in electric vehicle charging networks is expected through 2030 as countries ramp up support for electric vehicles. And it’s not just pure-play providers like ChargePoint that plan to capture those investment dollars.
The bull thesis is obvious. As adoption of electric vehicles increases, we’ll need places people can charge them. Ideally, subscriptions will result in “charging-as-a-service” business models with predictable revenue streams. It’s all there in the glossy investor deck provided alongside the SPAC merger announcement.
The ChargePoint IPO
Even before news of the merger broke, shares of the SPAC that ChargePoint plans to merge with – Switchback Energy Acquisition Corporation (SBE) – soared. Today, they’re trading up +38% which should piss off any serious investor who wants to pay the same price institutional investors paid – $10 per share, not $13.84 per share. That aside, we’re going to focus on what little insights we can glean from the glossy investment deck that was procured alongside news of the merger.
ChargePoint is a B2B company that sells the charging software, stations, and services. They do not monetize energy or driver utilization. They’re expecting that the $450 million this puts on their balance sheet (after retiring debt) will take them through until they’re cash flow positive. They presently have over 4,000 customers, and their largest clients spend significantly more as time goes on.
At a high level, revenue is approximately 80% network charging stations and 20% recurring software and warranty. The company anticipates revenues to grow at a +60% compound annual growth rate (CAGR) from 2021 to 2026 which means they’ll hit $2 billion in revenues by 2026. (Actuals are highlighted in yellow.)
This is directly correlated to the number of charging ports they’re able to sell. The below chart shows how rapidly they’ll need to scale the production of charging units to meet these revenues targets.
As with most SPACs, it’s all about hitting grandiose growth targets that then serve to justify their valuation.
Every SPAC now seems to follow the same sort of cookie-cutter template pitch deck that usually ends with some “comparables” slides which are supposed to show how reasonably valued the company is when compared to other publicly traded stocks that operate in a similar space. All the electric vehicle (EV) SPACs love to compare themselves to Tesla because just about anything compared to Tesla will look cheap. ChargePoint is no exception, and they’ve also decided to compare themselves to all the other overvalued EV-related SPACs that have debuted recently – names like Hyliion, Nikola, and Velodyne. Here’s what those names are trading at today after institutional investors paid $10 per share.
- Hyliion – $44.39
- Nikola – $19.46
- Velodyne – $20.42
Then, ChargePoint starts to count their chickens before they’re hatched, using 2025 and 2026 revenue forecasts in their comparable calculations in an attempt to show how fairly valued they are.
Regardless of how they portray themselves in the comparables, we’re not paying a premium of 38% to buy their shares. Even at a reasonable premium – or no premium at all, ideally – the presentation deck lacks the detail which would typically accompany a traditional IPO in the form of an S-1 filing. Such detail helps us make decisions we feel good about. After ChargePoint files their first 10-K, we’ll dig through it and take another look. That will also allow the dust to settle a bit. Given the transaction was just announced and the deal hasn’t even closed yet, seems a bit premature to even have these discussions.
The entire electric vehicle space is getting far too much attention from the Robinhood weekday warriors who are driving all electric vehicle stocks – some with nothing more than a business plan – through the roof. They’re all desperate to find “the next Tesla,” hoping to make up for the fact that they missed out on the stratospheric rise of the real Tesla, something they’re also responsible for fueling. For risk averse technology investors, the entire electric vehicle space is best avoided until investors start behaving more rationally.
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