Though electric vehicles have become one of the dominant themes of 2020 — aside from the novel coronavirus — one harsh reality that hampers this sector’s progression is infrastructure. Don’t get me wrong, multiple companies are addressing this very issue, including Switchback Energy Acquisition (NYSE:SBE), a special purpose acquisition company (SPAC) that plans a reverse merger with privately held ChargePoint. But for SBE stock to rise above, ChargePoint must credibly address the infrastructure challenge.
True, EVs have stormed ahead in prominence, particularly in this pandemic-affected year. Why? A critical reason has to do with global supply chain exposure. When the outbreak crippled China, most international automakers panicked due to their reliance on Chinese automotive production facilities. Unfortunately, you can’t just build a car with some of the parts missing.
On the other hand, EVs have fewer moving parts, which result in less maintenance requirements. As a result, more consumers started considering making the switch to electric given how exposed their internal combustion cars are to foreign disruptive events. And when consumers think about EVs, that augurs well for SBE stock.
Furthermore, data from the International Energy Agency reflects that demand has been soaring for EVs. Admittedly, the vehicles represent only 2.6% of global auto sales. However, that also implies substantial growth potential, especially with the recent surge of interest. Again, chalk this up as a positive for SBE stock.
However, the broader challenge to EV industry growth is that it’s somewhat dependent on battery technology. Without fast-charging capabilities on par with the refueling rate of combustion-engine cars, it’s hard to imagine EVs making a dent in automotive market share before hitting a ceiling. All the infrastructure in the world won’t mean much if you have to sit there for half-an-hour to charge your vehicle.
In addition, it’s important to note that two-thirds of housing units in the U.S. had a garage or carport in 2017. By deduction, that leaves one-third without such access. This, too, becomes a challenge for mainstream EV integration.
Fortunately, ChargePoint offers a smart business model that could further positively shift the narrative for SBE stock.
SBE Stock Is About Access and Convenience
Just prior to the novel coronavirus pandemic, CBSNews.com reported that America is increasingly becoming a nation of renters, not homeowners. While there are multiple factors that come into play here, the reality is that home ownership is out of the reach for many people in major metropolitan areas.
As well, the pandemic has created a twisted nature in our economy. According to The New York Post, big corporations have taken advantage of the crisis, buying up homes. Increasingly, the American Dream is becoming exactly that, a dream.
Since many if not most apartments lack EV charging facilities, this would seem to stifle the broader industry. Naturally, this would be a net negative for SBE stock. However, ChargePoint has a way around this with its initiatives for apartment and condominium complexes.
Essentially, ChargePoint offers a win-win solution for these types of housing units. For instance, apartment owners can install EV charging stations, attracting a growing number of green-conscious tenants. From there, landlords can extract charging revenue. Plus, the at-home charging stations may incentivize not only new EV purchases but convince tenants to stay longer term.
Therefore, the bullish case for SBE stock is similar to content delivery networks. In this context, the charging stations aren’t located in some far-flung region of your community. Instead, the infrastructure is right at your parking spot.
Don’t forget that the convenience factor is critical for overcoming consumer fears about EVs. After all, we’re talking about a brand new and unfamiliar technology for most people. And lack of knowledge about them ranks as one of the reasons why drivers don’t make the switch.
But one of the most important is the lack of charging stations in the consumer’s market. No matter how great an EV is, people want to advantage one of its key selling points — at-home “refueling.” Previously, that was simply impossible for many Americans. But with ChargePoint’s “edge” charging business, EVs can start to shed their perception risks, which is bullish for SBE stock.
Not Everything Is Rosy
Although I’m tempted to buy SBE stock myself, there’s one more risk factor that I see with EVs in general. Until we have a breakthrough in battery technology, these cars will be expensive. Granted, I understand the argument that EVs save money over time relative to a combustion engine car. But the upfront costs are usually very high.
This could pose a problem in the new normal. According to several media reports, people, particularly millennials, are moving out of crowded urban centers to the suburbs. Others, due to the connectivity of remote work, have decided to move to areas with lower living costs. Economically, it’s a sensible move, all other things considered.
But when you move, cash flow is a challenge. Therefore, many would-be car buyers may not be in the market for an EV due to their spending on relocation. So, it’s possible that in the near term, SBE stock could be volatile. Indeed, shares have been choppy over the trailing month.
For me, I’d like to wait out the wildness. But as a longer-term idea, I believe ChargePoint’s business has real teeth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.