Editor’s Note: This article was updated on Feb. 24, 2021, to note that ChargePoint has enabled 87 million charges in its history.
Switchback Energy (NYSE:SBE) has pulled back significantly in recent weeks. However, the company’s acquisition target, ChargePoint, is poised to benefit from multiple trends. As such, I recommend that long-term investors buy SBE stock on the dip.
ChargePoint has several developments that should boost it going forward. For instance, it stands to gain from the proliferation of electric vehicles (EVs) — particularly in Europe — as well as improvements in battery charging. The company also has a first-mover advantage in public-battery charging, operating EV stations in both the U.S. and Europe.
Switchback, a special purpose acquisition company (SPAC), is poised to merge with ChargePoint soon. As I pointed out in my previous column on SBE, “after the merger […] the stock will be known as ChargePoint Holdings, which will be the parent company of ChargePoint Inc.” So, SBE will benefit greatly from ChargePoint’s incoming boons.
SBE Stock and Soaring EV Sales
In December, the European Union (EU) decided to reduce its greenhouse gases by 55%, up from its previous goal of 40%. However, Bloomberg has estimated that a 60% reduction in emissions would require EVs to make up almost 60% of the vehicles sold in the EU by 2030. So, it’s likely that this new target will force nearly 55% of vehicles sold within nine years from now to be EVs. Moreover, in 2020, EVs reportedly already accounted for “11.5% of new car sales in the region.” Those are both great developments for ChargePoint and SBE stock.
In the United States, however, EVs make up a much lower percentage of overall vehicle sales. But EV demand is also reportedly poised to jump this year. According to Edmunds, EVs will make up 2.5% of total automobiles sold in the U.S. this year. That’s up from 1.9% in 2020.
Further, as I’ve reported before, many more manufacturers are entering the electric vehicle space. Edmunds noted that “30 EVs from 21 brands will become available for sale this year, compared to 17 vehicles from 12 brands in 2020.” Meanwhile, Tesla’s (NASDAQ:TSLA) sales growth is weakening in Europe and much of the United States.
So, the demand for ChargePoint’s stations should surge as the EV sales for companies other than Tesla all jump higher. That’s because Tesla provides its own public charging stations for its models while many other automakers do not.
Charging Improvements and a First-Mover Advantage
I predicted in my previous piece that improvements in charging technology would enable EVs to be powered more quickly. However, that prediction actually fulfilled itself much faster than I thought it would.
On Jan. 19, Bloomberg reported that an Israeli company, StoreDot, had created an EV battery that takes only five minutes to charge. What’s more, StoreDot believes that it may be able to roll out the chargers on a large scale by 2025.
If EVs become rechargeable in just five minutes, EV drivers would be willing to rely more on public chargers. With five-minute charging, drivers can plug in their cars, get a coffee, wait another minute or so and then be off.
Given its huge head start in EV charger infrastructure and technology, ChargePoint will be well-positioned to benefit from this development. After having enabled nearly 87 million charges, the company is clearly one of the global leaders in the space. In fact, ChargePoint’s chargers were deployed in 54,000 locations in 2018, versus just 1,680 locations for Blink Charging (NASDAQ:BLNK), one of the company’s top competitors.
Finally, Citron Research noted in November that ChargePoint has “73% market share” and spent $70 million on research and development while Blink spent nothing on R&D. As such, I believe ChargePoint is ahead of the competition when it comes to market share and technology. That means SBE stock is poised to jump.
My calculations indicate that Switchback is currently valued at about $10.6 billion. That’s excluding debt and based on the assumption that the total share count is similar to what it was when the company gave its presentation back in October.
Now, that may seem steep, but given the huge opportunity that ChargePoint has — likely worth tens of billions of dollars — I’m still bullish on this name. I continue to recommend that long-term, risk-tolerant, growth investors buy shares of SBE stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.