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Switchback Energy’s (NYSE:SBE) deal to merge with electric vehicle infrastructure company ChargePoint can’t get here fast enough for SBE stock holders.
Switchback Energy announced last September that it planned to take ChargePoint public via a special purpose acquisition company (SPAC) deal. However, the exact timing for when ChargePoint will begin trading shares on the New York Stock Exchange has been cloudy at best. This is causing much hand-wringing among SBE shareholders as we start the New Year.
Initially, Switchback Energy and ChargePoint officials said they expected their merger to conclude by the end of 2020. Now, the deal date is Jan. 27, 2021. That date could change if due diligence takes longer.
The lack of certainty, and broader market weakness, took the air out of SBE stock. After peaking at just under $50 a share before Christmas, Switchback Energy’s stock price declined 25% to $36.78. That’s a sharp correction. This led some analysts and pundits to call for investors to book profits on Switchback Energy and move on.
However, investors with patience could be rewarded for seeing the SPAC merger with ChargePoint through.
A Big New Market
The electric vehicle market is exploding as governments around the world legislate the shift from gasoline-powered cars, trucks and sport utility vehicles (SUVs). Automotive manufacturers ranging from General Motors (NYSE:GM) and Ford (NYSE:F) to Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) scramble to meet current and future demand.
But what’s needed to make electric vehicles truly viable and spur uptake among the masses is the infrastructure that supports them. That means electric vehicle charging stations. And that’s where ChargePoint comes in.
Campbell, California-based ChargePoint manufacturers the electric vehicle charging stations that will need to replace gas stations if the electric vehicle revolution is to take-off as anticipated. In fact, ChargePoint operates the largest network of independently owned electric vehicle charging stations in the world, with a presence in the U.S. and 13 other countries.
To say that there’s a big market opportunity ahead of ChargePoint is an understatement. The company forecasts revenue will swell from $135 million in 2020 to $1 billion in 2024. By 2026, ChargePoint sees annual revenue reaching $2 billion. That’s a massive amount of growth over the next five years.
Short-Term Volatility for SBE Stock
As a new and emerging industry, electric vehicle stocks such as SBE are prone to volatility. Even the most successful companies in the space, such as Tesla and Nio, can be subject to big swings in their share price. And while companies such as Tesla and Nio break sales records, other electric vehicle companies such as Nikola (NASDAQ:NKLA) crash and burn.
The volatility is real and likely to continue for the foreseeable future. So is competition. ChargePoint faces stiff competition in Europe from EVBox (also going public via a SPAC). EVBox owns the biggest electric vehicle charging station network in the European Union. Blink Charging (NASDAQ:BLNK) in the U.S., also is a formidable rival.
But the short-term volatility is outweighed by the tremendous upside potential of ChargePoint. The company is set for exponential growth in coming years. Bloomberg News’ energy desk forecasts that electric vehicles will make-up 10% of global passenger vehicle sales by 2025 and 58% by 2040. And that growth is largely dependent on two things – improved batteries and readily available charging stations.
Right now, ChargePoint is a market leader in electric vehicle charging stations, particularly in the United States. That fact alone makes the company a good calculated bet in the fast moving electric vehicle sector.
Buy and Hold SBE
With ChargePoint set to make its market debut in a few weeks, current shareholders of SBE stock would be well-advised to hold onto it until the SPAC deal is concluded. At a minimum, shares of ChargePoint can be expected to pop when they begin trading in New York. Investors who want exposure to the electric vehicle market, and who have a long time horizon, should view SBE shares as an attractive buying opportunity at their current price ahead of the merger with ChargePoint. While short-term volatility can’t be ruled out, the potential for long-term profits are worth the bumpy ride.
On the date of publication, Joel Baglole held long positions in SBE, TSLA and NIO.
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