Overwhelmingly, the popular narrative for TPG Pace Beneficial Finance (NYSE:TPGY), the special purpose acquisition company set to merge with electric vehicle charging solutions provider EVBox, is that it’s an easy buy. With every incentive in the book to pivot personal transportation into a clean energy platform, TPGY stock is certainly relevant.
But being popular doesn’t necessarily correspond with profitability.
Don’t get me wrong because I could be wrong in my hesitation toward embracing everything EV-related. As a business model, EVBox checks all the right criteria. First and foremost, TPGY stock is a “ticket” investment as opposed to a wager on a specific team winning a matchup. In other words, with EVBox, you’re betting on the sector as opposed to the player.
Interestingly, Deloitte estimates that by 2025, global EV sales will hit 11.2 million units, up 348% from the 2.5 million units sold in 2020. By 2030, it projects 31.1 million units sold. With stats like these, the future is a bright one for electric-based transportation. But betting on which brand will dominate could be tricky; thus, TPGY stock could be considered in some respects a conservative bet.
In addition, EV battery technology should improve significantly by 2025 and definitely by 2030 – enough to the point when even without government subsidies, the platform will be accessible to “regular” drivers.
Keep in mind that the median household income in the U.S. was $68,703 in 2019. This tally combines the gross income of all household members 15 years and older. So no, this figure does not imply that everybody can afford a Tesla (NASDAQ:TSLA) Model 3, especially if a household comprises a primary breadwinner and multiple mouths to feed.
Therefore, if battery tech lowers overall EV costs, demand for infrastructure will soar. EVBox can address this need through its commercial and residential charging solutions.
So, TPGY stock is a no-brainer, right? Well, I hope you’ll indulge me when I say not so fast.
Economic Reality Could Slap TPGY Stock
While I appreciate the myriad benefits that EVs can bring – on a broader scale, less dependence on countries who don’t have our best interests in mind – I also much skepticism. The harsh reality right now is that EV technology is inadequate to address the lower end of the income spectrum. That can play a huge role in where TPGY stock heads over the long run.
Here’s the deal – EV evangelists love waxing poetic about how much they save on not pumping gasoline. This is true. However, if I must pay a premium for that platform – let’s say $10,000 – it will take many years for me to break even against the combustion engine.
It just comes down to simple math. Here in southern California, we pay outrageous prices for our gasoline. On top of that, I drive a relative gas guzzler that gets maybe 23 miles per gallon and I must top off with premium unleaded. If I drive the average 12,000 miles per year, I’m looking at spending around $2,350 annually.
Therefore, I must drive for four years and three months before breaking even on a $10,000 EV upcharge – again, on a gas guzzler. More economical cars – I’m pointing at you Toyota (NYSE:TM) and Honda (NYSE:HMC) – will see much higher fuel-efficiency metrics.
Thus, the point for TPGY stock is that the underlying company could have a case of premature electrification. But there’s no pill for this condition. Instead, shareholders will have to watch their valuation plummet.
An important clue that the consumer economy is not yet ready to integrate EVs mass scale is the net interest margin for all U.S. banks. In the third quarter of 2020, it hit an all-time recorded low of 2.8%. This means that people aren’t taking out loans and therefore, bank earnings as it relates to the lending business is suffering.
While this narrative can change, the personal saving rate is at multi-decade highs. Regular folks aren’t buying stuff. Until this trend dramatically reverses, you should be careful about TPGY stock.
Not Just an American Problem
You can counter my argument with the point that EVBox is the leader in Europe’s EV charging space. While that is the case, the problem here is that the deflated consumer economy is not merely an American phenomenon.
As S&P Global Market Intelligence noted earlier this year, the global low-interest-rate environment has squeezed Russian banks’ profitability. Unsurprisingly, the pandemic weakened Russia’s consumer economy. It’s the same case throughout Europe – people are hunkering down.
Obviously, this doesn’t help TPGY stock because in order for consumers to benefit from EVs, they must first buy them. But that’s exactly the problem. The pandemic’s impact could be worse than advertised as evidenced by weakness in the global banking infrastructure.
For that reason, I’m staying on the sidelines with TPGY stock. Personally, I have nothing against the underlying company nor the business. It’s just that the timing could be off.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.