Despite the devastation of the novel coronavirus pandemic, the one sector that performed remarkably well was the burgeoning electric vehicle market. However, one of the nagging criticisms about EVs has been the lack of infrastructure. That is where ChargePoint (NYSE:CHPT) stock comes in.
As more people make the switch to green transportation, the likelier it is that CHPT moves higher.
Sure enough, this narrative played out strongly into late December of last year. It’s not just that people were buying EVs because it was the cool thing to do. Rather, electric transportation suits the new normal. For instance, many cars have sat unused, often for months due to the lockdowns. In a combustion car, it’s a killer because you need the various parts to stretch its legs.
EVs? They can’t sit unused forever. But they’re more hands-off than combustion cars can hope to be. As a personal anecdote, my battery on my older combustion car lost charge and I had to drive around for a hundred miles to restore it. Therefore, the convenience factor of EVs supports CHPT stock.
However, EVs aren’t cheap, especially if you want a vehicle with range and features similar to combustion cars. Combined with the Texas winter storm imposing a dark cloud on the sector – it’s hard to maintain EVs when, you know, you don’t have electricity – several industry-related investments, including CHPT stock suffered volatility.
Then, the Biden administration came to the rescue. On April 22, the White House put forward its plans to develop EV charging infrastructure. In March, the U.S. passed the milestone of 100,000 public chargers. Under Biden’s American Jobs Plan, his administration will attempt to “build a national network of 500,000 charging stations.”
Obviously, this has direct implications for ChargePoint. Not surprisingly, CHPT stock jumped 10.5% the day following the White House announcement. Is it safe then to consider this infrastructural play?
CHPT Stock Should Not Rely on Uncle Sam
In our history books, President Franklin D. Roosevelt’s New Deal receives substantial praise for getting the U.S. out of the clutches of the Great Depression. More recently, though, historians have questioned the magnitude that the unprecedented government action had on the economy.
Undeniably, the New Deal sparked social changes and laws that we enjoy today, such as Social Security and the establishment of the Federal Deposit Insurance Corporation. But as Linda Gordon, professor of history at New York University argues, government programs during the Depression era “were insufficient [because] the amount of government funds for stimulus wasn’t large enough.”
Further, Gordon notes that “only World War II, with its demands for massive war production, which created lots of jobs, ended the Depression.” Honestly, it sounds like the challenges that we’re going through.
The main problem I see with the Biden administration’s plans for rolling out EV infrastructure is the misalignment between supply and demand. It’s not the president’s fault nor the fault of prior administrations – this is just how government works, which is to say hardly at all.
You see, I wouldn’t buy CHPT stock on the White House’s plan because this plan assumes that consumers at large will need those half-million charging stations. Evidence suggests they won’t.
Primarily, I say this because our labor force is more efficient than ever, which by context is deflationary. For instance, in the fourth quarter of 2019, each worker (based on the employment level) contributed $137,169 to the GDP. In Q4 2020, each worker contributed $142,943 to GDP, or a 4.2% efficiency increase.
But over the same time comparison, the employment level dropped 5.5% (on a quarterly basis). When the worker base declines but productivity per worker increases, this is deflationary for the economy as fewer dollars are chasing relatively the same number of goods.
Obviously, this isn’t a great environment for retail, whether everyday goods or expensive items like vehicles. And that really hurts CHPT stock.
Big Government Is Not the Answer
To be fair, if Biden and the Democrat-controlled Congress manages to spark a substantive revival in the labor market, then the deflationary dynamic could shift to a more favorable controlled inflation. Potentially, this could mean that CHPT stock is a deal of a lifetime at this price.
Certainly, I’m open to that idea. However, it’s also important to realize that government generally doesn’t have a great track record at catalyzing economic growth and prosperity. If government was the answer to our problems, surely the most intensive centralized authorities in history and in current world affairs – the Soviet Union and North Korea come readily to mind – would surely be paragons of success.
They are not. So, forgive me but I’m skeptical of CHPT stock jumping on government action. It probably didn’t work for us the last time we had a catastrophic crisis, and it certainly didn’t work for the Soviets. Is this time any different?
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.