How to Plug Into Electric-Vehicle Chargers

Among the picks and shovels in the electric-vehicle boom are charging points. They seem to…

Among the picks and shovels in the electric-vehicle boom are charging points. They seem to be more reliable bets than the startup car brands looking to take on

Tesla,

but investors still need to decide whether they prefer picks, shovels or something altogether new.

A number of companies that offer EV charging infrastructure have gone public in recent months via the now-familiar route of a merger with a special-purpose acquisition company, or SPAC. The first mover was ChargePoint, whose deal closed in February, followed by EVgo, EVBox and Volta Industries, which have yet to complete theirs. There is also

Blink Charging,

which held a conventional initial public offering in 2018.

The basic rationale for investing in such companies is that charging services are needed to support the expected growth of EVs. While this has been true for years, the sector has gotten a big boost from Tesla’s soaring market value, a high-profile scramble by the likes of

General Motors

and

Volkswagen

to launch competing EVs and most recently the Biden administration’s decarbonization agenda.

A ChargePoint charging location in Maine. The company bundles its boxes with software that offers cloud-based pricing, energy management and other services.



Photo:

chargepoint/Reuters

Importantly, charging-related companies should benefit from EV adoption whichever vehicle manufacturers dominate. That means investors can sidestep the difficulty of picking winners in an increasingly crowded field. With the exception of Tesla, which has its own network, all EV makers rely on shared charging facilities.

“Even if EV adoption is half of current expectations these companies should make their numbers,” says Craig Irwin, an analyst who follows the sector for Roth Capital Partners.

That still leaves plenty of questions. One is which companies are better placed: those that sell charging equipment and related software, such as ChargePoint or EVBox, or those that build and operate networks, such as EVgo and Volta. Blink straddles both models, operating a network with its own gear.

Equipment makers should grow very rapidly as EV networks get built out. But hardware vendors often face falling prices as their technology develops and scales up—a problem that may benefit network builders.

ChargePoint bundles its boxes with software that offers cloud-based pricing, energy management and other services. This provides a revenue stream that could offer some protection from the risks associated with hardware businesses. Europe-based EVBox also sells both hardware and software but, unlike U.S.-focused ChargePoint, not always together.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

While some companies that went public via SPACs are now trading below their $10 IPO prices, ChargePoint stock fetches around $25, giving it a market value of roughly $7.5 billion. Investors like its overwhelming 73% market share of the standard alternating-current chargers installed to date in the U.S. as well as the software business model. It is a simpler company to understand than EVBox, which offers a wider variety of services to suit the more mature and fragmented European market.

Most EV charging is currently done at home on AC chargers, but that could change as U.S. ownership broadens beyond wealthy Californians with their own garages. Direct-current fast-chargers can reduce charging times from all night to half an hour.

EVgo operates the largest U.S. public fast-charging network, with a business model based on charging a premium over electricity costs. Building stations is capital intensive—they can cost half a million dollars—but promises double-digit returns as long as they are used to the extent expected. That condition depends on both the pace of EV adoption and the wisdom with which the company picks sites.

The likes of EVgo also can receive subsidies to bring stations to places that don’t otherwise justify the investment. GM is paying $90 million for 2,700 EVgo stations that otherwise wouldn’t be economical. The Biden administration might do something similar.

San Francisco-based Volta is perhaps the most innovative—and speculative—of the EV charging companies going public. It is building a network to serve as an ad platform, with the electricity provided for free.

While chargers are the gas pumps of the EV era, the comparison shouldn’t be taken too far. Electricity can be delivered in more ways and places than gasoline, and many of the emerging business models remain untested at scale. Charging infrastructure seems like a good place to put money as the EV revolution gathers pace, but investors still need to be careful where they plug in.

Write to Stephen Wilmot at [email protected]

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