When I last wrote about Switchback Energy (NYSE:SBE) in November, I wondered if it was a poor cousin to Tesla (NASDAQ:TSLA). It was meant playfully, mind you, because I like both companies, not to mention TSLA and SBE stock.
That article primarily discussed ChargePoint’s charging network — Chargepoint is merging with Switchback — versus Tesla’s. The two companies have come to the charging situation from different perspectives.
Tesla has more than 2,000 Supercharger Stations across North America. It’s in the charging game because it can sell its vehicles for more based on this “members-only” business model.
Charging Point, on the other hand, is like the Red Hat of the electric vehicle infrastructure world. Its goal is to grow the global charging network openly and securely: any station, any driver, any system.
If you believe in renewable energy and the electric vehicle movement, I don’t see why you wouldn’t support ChargePoint’s efforts. They’re simpatico with each other. And while I like Tesla, I also like Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and all the other EV manufacturers, including the domestics General Motors (NYSE:GM) and Ford (NYSE:F).
The problem is that not all of them will win, and most certainly, some will lose and go out of business. This is why I believe a bet on Switchback Energy is like laying the field in horse racing. Let me explain.
SBE Stock and the Field
Laying the field is when a bettor places a bet on every horse to lose a particular race. So, if there are 10 horses in a race, you would win nine times out of 10. Now, to get those nine wins, you have to find matching bets, and without getting too deep into the finer details, it’s not easy.
As it relates to renewable energy and the world’s transition to electric vehicles, laying the field in this example would be to bet against all of the electric-vehicle manufacturers, both those currently producing and those planning to in the future.
It’s not written in stone that any of these firms, including Tesla, will be left standing in a decade. In fact, we know a fair share of them will go bankrupt or be gobbled up by their more successful competitors. So, to bet against them could be smarter than trying to figure out the next Tesla worth buying.
Alternatively, you could invest in Switchback, who has no dog in the electric-vehicle fight and are merely trying to help businesses and consumers power their vehicles in a post-ICE (internal combustion engine) age.
“Ultimately, as more electric vehicles hit America’s roads, more charging stations will appear at businesses across the country. And that will bring the cost down, making it even more affordable for businesses of all sizes,” I wrote last month.
“In the meantime, I’m a big believer in ChargePoint’s business model. Big business has gotten virtually a free ride when it comes to the employee commute. Whatever happens post-Covid, if companies want to attract top talent, they need to provide attractive benefits. Having charging stations available in large numbers is one of those perks.”
If you believe in EVs and their growth, an investment in SBE/Chargepoint seems like a very sensible way to ride this secular trend.
Ride the Wave
Ark Invest’s Big Ideas 2020 report points out that the Energy Industry Administration (EIA) estimated in 2016 that there would be less than one million EVs on the planet in 2020. Well, we know that there were 2.1 million at the end of 2019, far exceeding the EIA’s estimate.
As Ark Invest’s report suggests, the EIA missed the boat so badly that it revised its 2024 estimate to 6.5 million. Ark Invest speculates that as battery costs drop, EV uptake is going to accelerate. It estimates there could be as many as 37 million in 2024, six times the agency’s projection.
If you think Elon Musk will supply all those chargers necessary to power such a big fleet, you obviously don’t know Musk very well. Yes, he’s obsessed about the planet, and he might even figure out how to get chargers into as many hands as possible, but that’s still going to leave plenty of room for ChargePoint.
Recently, my InvestorPlace colleague Mark Hake argued that SBE stock would be 55% more valuable once it merges with ChargePoint; when he said that on December 4, SBE was trading at $32.
Do the math: he’s talking about a $47 share price within months.
“The growth rate in charging stations will reflect the growth rate in EVs. Both are expected to skyrocket over the next six years,” Hake wrote. “Therefore, that is what investors and sell-side analysts are going to focus on going forward.”
As Mark says, there aren’t any sell-side analysts covering SBE right now. Once the merger happens, the reports will begin to flow. And the stock will move higher.
Last time around, I said SBE was one of the best SPAC IPOs in recent memory. Post-merger, I think it could be the best SPAC IPO in history.
We’ll find out soon enough.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.