By now we know that Switchback Energy (NYSE:SBE) will complete its reverse merger with ChargePoint in mid-February. At that point, investors will be investing under the ticker symbol CHPT. SBE stock is showing plenty of volatility in advance of finalizing the merger. Since the new year began, the stock has climbed by 20% and lost 11% of that gain.
While many observers are bullish about the prospects for ChargePoint, I’m not as sure. Last month, I wrote that in many cases risk-tolerant investors can maintain their optimism long after such optimism is warranted.
However, as the company prepares to trade publicly, investors deserve to hear both sides of the argument. And I’ll do my best at that in this article.
Not an Either/Or Proposition
What I love about ChargePoint, and by extension, Switchback Energy is that it’s an indirect play on the EV sector. The reality is that for the United States to embrace electric cars on a mass scale, the U.S. will need a charging infrastructure that’s as ubiquitous as gas stations are today.
Battery technology is getting better. However electric vehicles today are a poor choice for long road trips unless you can carefully plan stops to ensure your vehicle’s battery can be recharged. And that infrastructure is still lacking (at least on a widespread basis).
ChargePoint addresses both the slow charge (AC) and fast charge (DC) that EV drivers will need to access. The company does offer home charging units and even has an app that allows EV drivers to find the ChargePoint charging station near them.
However, even with tens of thousands of charging stations in use today, the United States will need tens of thousands more if they are to meet the demand that is being projected.
It Helps to Be a Leader
Part of the bearish argument against ChargePoint is that the field is about to get really crowded. That may be true, but ChargePoint is the leader in the sector. The company has over 109,000 charging stations in place and there’s no reason to believe it won’t be able to build on that advantage.
Still, the company does have competition such as Blink Charging (NASDAQ:BLNK) and EVGo, recently announced it will be going public via a SPAC. Climate Change Crisis Real Impact 1 Acquisition Corp (NYSE:CLII) will bring the company public in a deal that values EVGo at $2.1 billion.
And, if the electric future only had one charging solution, the story for ChargePoint, would look a lot better. Clearer at least. However, it doesn’t completely explain the competition that ChargePoint will face.
Hydrogen is gaining momentum. QuantumScape (NYSE:QS) recently went public and it remains to be seen what will come of its solid-state battery technology. Investors also can’t ignore that Tesla (NASDAQ:TSLA) has its own proprietary charging network.
The EV Revolution May Be Delayed
I know that President Biden has put the petal to the metal as far as getting the EV revolution charged up. If the administration is to be believed, the entire U.S. government fleet of vehicles (over 600,000 strong) will be electrified. No target date has been set, but that’s a solid down payment.
As Matt McCall noted in a recent opinion on SBE stock, for the time being, EVs are not affordable for many middle-income earners. However, as McCall also noted, this could actually be a net positive for ChargePoint.
That’s because when EVs do go mainstream many Americans will not be able to afford a home EV charging system, or they may live in an apartment, condo, or manufactured home community. This means they’ll still need the convenience of public charging stations.
Sit Tight on SBE Stock
I could argue that SBE stock is fairly valued. After all, Blink Charging is coming down off a short squeeze. EVGo will be competing for investor capital. And as I’ve noted in this article, the long-term outlook for ChargePoint’s business model is not the slam dunk that many may think it is.
But in the short term, ChargePoint looks like it will be the best option. Even with that in mind, I would sit tight on SBE stock and wait to make a decision until ChargePoint goes public.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.