Investors interested in electric vehicles should expand their search from the vehicles to the technology required to keep them running. Switchback Energy (NYSE:SBE) is set to be a leader in this evolving arena, and SBE stock is one to seriously consider buying.
Evolving is a key word here. In the United States, electric driving is in its very early stages. Widespread acceptance of transportation powered by electricity and fuel cell seems inevitable, though. Why? Because these vehicles offer many advantages without the pollution that results from internal-combustion engines.
However, getting to where the vehicles are commonplace will require development of infrastructure. This is where Switchback Energy and Chargepoint, its soon-to-be-partner, enter the picture.
Introducing SBE Stock
Switchback Energy is not a wildcat oil exploration outfit or an established energy producer along the lines of Exxon Mobil (NYSE:XOM).
Switchback is a special purpose acquisition company, or a SPAC, which is a different route to take a company public. As the tag implies, these companies are shells created to merge with a firm wanting to go public. The SPAC raises money, conducts an IPO (thus SBE stock) and has a limited window to make a deal.
SPACs aren’t new but they have gotten popular as an alternative to the traditional route of an initial public offering. Retail investors can get in early by buying shares of the SPAC before the merger. The focus of this column, Switchback Energy, was formed in 2019 and is based in Dallas.
Shares of SBE stock are trading around $15, which isn’t too far off its 52-week high of $16.45. The peak was reached after the merger with Chargepoint was announced. The 52-week low was $9.38.
What Is Chargepoint?
Chargepoint is a privately held (for now) company that installs and operates charging stations for electric vehicles. It also manufacturers equipment for its service. The company is considered an established leader in this developing field in both the U.S. and in Europe. Chargepoint operates about 115,000 charging stations.
The company raised about $600 million from private investors for the reverse merger with Switchback.
Based in Campbell, California, Chargepoint was formed in 2007. It has drawn a variety of investors ranging from a pension plan to an electric utility to a branch of Chevron (NYSE:CVX). Last year, the company reported a loss of about $133 million. It forecasts 2020 revenue to total $135 million, which would be a drop from about $147 million posted in 2019.
SBE Stock and the Deal
The pending reverse merger with Switchback Energy will result in a company named Chargepoint Holdings. Pasquale Romano, the CEO of Chargepoint, told CNBC recently that the pending reverse merger with Switchback Energy is on much stronger footing than other SPAC deals.
“We’ve had a 10-year track record of shipping products and supporting customers,” he said. “We don’t have the risks of a pre-revenue company.”
The company forecasts 60% annual compound growth to top $2 billion after seven years.
Chargepoint’s ambitious growth forecast is based on the anticipated increase in electric-vehicle use. Thanks in part to the pioneering spirit and success of Tesla (NADAQ:TSLA) and the performance of hybrids, American consumers no longer view battery-powered vehicles as too exotic to consider.
And remember, Tesla limits use of its charging stations in the U.S. to Tesla vehicles.
This off-limits stance sets the stage for companies like Chargepoint.
The Bottom Line
Switchback Energy is a SPAC preparing to complete a merger with Chargepoint, a maker and provider of charging stations for electric vehicles in the U.S. and Europe.
The resulting Chargepoint Holdings appears to be poised to expand and try to cement its lead in setting up charging networks in private homes, apartment complexes and public sites, such as retail store parking lots. Moreover, this merger is happening as the fossil-fuel addicted U.S. appears ready to embrace this cleaner alternative way to power transportation.
Long-term investors should seriously consider buying SBE stock. When compared to other SPACs, this deal appears to be in a better starting position.
Yes, as in any stock investment, there is risk. In this case, though, SBE stock has more going for it.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.