From an investing perspective these are go-go though still early days for the electric vehicle (EVO) industry and that ebullience is lifting a slew of names, including Switchback Energy Acquisition (NYSE:SBE). After surging almost 155% over the past month, SBE stock is higher by nearly 340% year-to-date.
This is a movie investors are seeing repetitively in 2020. A special purpose acquisition company (SPAC) finds an EV firm to merge with and no matter speculative the target is, the SPAC’s shares surge because, well, market participants see “EV” and bid the stock higher.
As the aforementioned price action confirms, that scenario is playing out with Switchback because the reality is investors are desperate to find the next Tesla (NASDAQ:TSLA). It can be argued that the run-up in SBE stock suggests “next Tesla” status is at play or that this is another example of a growing EV bubble.
Neither are accurate because of what ChargePoint, Switchback’s merger partner, does and does not do. ChargePoint isn’t an automaker. Rather, it’s a provider of electric vehicle charging stations, making it a derivative play on EV growth.
SBE Stock Could Be Safe EV Idea
These days, it’s hard to dub most EV equities “safe,” but Switchback/ChargePoint does fit the bill as practical. After all, one of the biggest issues facing the industry is how long electric cars and run before needing a charge.
Manufacturers, led by Tesla, are diligently working to extend mileage in between charges and battery technology is advancing, but given the American driving culture, there’s still a need for the infrastructure ChargePoint is providing.
Think of the opportunity set here this way: Imagine you’re an EV owner living in southern California wanting to drive to Las Vegas for the weekend or you live in Dallas and to drive your EV to Houston to see friends and family. Sure, you charge your car at home overnight before embarking on the trip, but it’d be reassuring to know there are charging stations along the way.
President-elect Joe Biden wants to address this issue. He wants to install 500,000 charging cords across the country by 2030, which could cover 57% of the U.S. population and perhaps stoke sales of 25 million electric cars and trucks.
Details on getting to 500,000 cords are sparse at the moment and there’s the matter of getting Congress to pay for it, but in broad strokes, this is practical policy and should find bipartisan support, particularly as the more moderate faction of the GOP looks to embrace renewable energy policy.
It remains to be seen what comes of the Biden plan and where it ranks on the incoming administration’s list of legislative priorities, but the fact is it’s a clear catalyst for SBE stock.
Maturity Matters
Among EV companies and nearly every firm involved in blank-check deals, ChargePoint is mature – it’s 13 years old. That says the company has staying power. Moreover, its business model fits the “asset-light” classification many investors are craving these days.
It doesn’t actually own the charging stations and its model isn’t capital intensive. In fact, CEO Pasquale Romano recently said ChargePoint doesn’t need the cash infusion it’s getting via the Switchback deal. That’s a departure from so many EV industry participants that need capital just to start production, explaining why the SPAC synergies in this space are so intense this year.
Bottom line: ChargePoint fills an important void in the EV industry, it’s manufacturer agnostic so it’s not levered to a particular automaker’s EV successes or failures and it’s not a capital-intensive business, meaning it could earnings positive faster than many SPAC targets.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
