Switchback Energy Acquisition (NYSE:SBE) and ChargePoint, an electric vehicle charging station enterprise operating in 14 nations, will soon become one company in a deal valued at $2.4 billion. No one knows exactly when SBE stock will morph into ChargePoint shares. But this much is certain: As 2021 draws to close, it deserves notice as the Year of the Special Purpose Acquisition Company (SPAC).
As so many other SPACs, including Landcadia Holdings (NASDAQ:LCA) and the former DiamondPeak Holdings Corp., Switchback exists to raise money for a new and exciting company investors can embrace. At least that’s the hope. The two SPACs mentioned connect to Golden Nugget Online Gaming and the now-listed Lordstown Motors Corp. (NASDAQ:RIDE) respectively. SPACs have served in general as effective capital drivers for new publicly-traded businesses, but the connection between their viability and the post-merger company is less clear.
This gives rise to something I call “SPACulation.” That is, any SPAC lacks a history by which investors can judge its worth. And the company it intends to fund often makes its case via salesmanship as opposed to sales record.
The classic example is the newly-minted Fisker (NYSE:FSR), an EV company that reversed merged with the former Spartan Energy at the end of October. As for the Fisker Ocean SUV it wants to produce, don’t hold your battery-powered breath waiting for the new car smell. The Ocean won’t hit the market until the fourth quarter of 2022. At earliest.
Can investors expect something less SPACulative from ChargePoint and SPE stock? That the new public company will fill a different need in the EV sector is tantalizing. Now, onto the case for the merged outfits.
SBE Stock Soaring With Promise
Despite not quite knowing what this SPAC will lead up to, investors are clearly enamored of SBE stock. It’s up a very satisfying 262% since mid-September. But as for where the analysts sit, that’s fairly impossible to determine. Maybe someone has an opinion but if so, yours truly couldn’t find it on either the NASDAQ or Wall Street Journal profiles.
I take that to mean that as investors, we’ve been left to fly by our own sights here. To that end, it’s a given that EVs need ubiquitous places to charge their batteries just as much as conventional vehicles need gas stations. That’s a plus mark for those extrapolating SBE stock into the future.
As for the present, what’s ChargePoint up to? It might reassure investors to know that it’s one of the oldest and largest electric vehicle charging networks out there. It’s been in business 13 years and has amassed some 4,000 business customers. In a Sept. 24 interview with CNBC, CEO Pasquale Romano discussed the reverse merger, saying that “the recent awakening in the investment community, that this trend is here to say, [made] it good timing for us.” Of course by “trend,” Romano could’ve meant SPACs as much as EVs. Anyway…
A Question of Profitability
CNBC’s Phil LeBeau held Romano’s feet to the fire, mentioning that ChargePoint was “not yet profitable,” wouldn’t be so for at least a few years, and was “at least the sixth EV-related SPAQ since May.” His skepticism about ChargePoint’s timing and intentions – and by implication SBE stock – was and is well founded. Asking investors to get behind a company that can’t demonstrate its financial viability amounts to either a bet or a highly risky endeavor.
That said, a major difference exists between investing recklessly and a calculated risk. What’s more, there’s no crime in either riding the SPAQ wave or coming to market as a profit-less company. In fact (and as I’ve stated in other pieces), profit and nascent EV companies rarely if ever go hand in hand.
The one danger this sets up, though, is a financial veil of smoke that makes it hard to tell the EV visionaries from mirage-makers. Nikola (NASDAQ:NKLA) certainly fooled the market with its fraudulent practices. And any company that can’t get a vehicle on the road for at least two years (Why hello there, Fisker!) reeks in a very general sense of “take the money and run.”
Pulling into the Station
Where does all this leave SBE stock? Given that the reverse merger could take place any day now, it’s safe to say this SPAC succeeded. The real issue becomes whether the momentum can continue once ChargePoint goes public. That’s impossible to say. But given that the company has been around more than a decade should dissuade investors from the notion that they’re about to be deceived.
It might not matter anyway, he said cynically. The scandal that forced founder Trevor Milton out of Nikola did not yank back the 66% gain investors have enjoyed year over year. This points to the larger issue of a newly viable sector and ChargePoint’s place in it. I like that it serves a narrowly-defined EV need and has already been in business for more than a decade. That means, by the way, that it survived the Great Recession while still in its infancy.
SBE stock might be worth a try then. If you feel that way, I’d suggest starting small and watching what happens once the reverse merger with ChargePoint completes. It may take some time before the rest of the sector catches up and enough EVs hit the road to generate some critical mass. Patience, then. That’s not a popular word with EV investors these days. But it takes maturity to appreciate the long road that lies ahead for SBE stock. It’s one that I believe should be lined with thousands of new charging stations.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.