Can EV-Charging Stocks Justify Their Valuations?

By Kirsteen Mackay

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Investor interest in the EV market has exploded in recent weeks with Biden's infrastructure bill giving hope to the hype. So, are EV charging stocks a buy?

EV charging stocks have wild valuations

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EV companies are achieving insane valuations that seem hard to justify. While this has long been the story of Tesla (NASDAQ: TSLA), it seems the magic rally dust is spreading to anything related to the EV industry; cars, vans, trucks and charging stocks are all hot right now. It makes you begin to question whether EV stands for 'electric vehicle' or 'ever valuable'?

President Joe Biden's $1.2 Trillion infrastructure bill was finally signed into law last week and investors saw yet another reason to push EV stocks higher. This was compounded further by upbeat earnings reports from EVgo (NASDAQ: EVGO) and Blink Charging (NASDAQ: BLNK).

Electric vehicles are growing their market share as consumers opt to ditch fossil-fuel-powered transit for EV alternatives. To keep pace with demand, EV infrastructure in the form of charging stations is needed too. President Biden is keen to support this, and some of the leading players in the space include EVgo, ChargePoint (NYSE: CHPT), Volta (NYSE: VLTA), and Blink.

Why did Biden's infrastructure bill help EV stocks?

Biden's $1.2 Trillion infrastructure bill includes a $7.5 billion EV charging plan. It will contribute to the administration's intention to distribute half a million new EV chargers across the country within the next five years.

Tesla has its own network of around 30,000 Superchargers. But other EV makers such as Volkswagen and General Motors (NYSE: GM) collaborate with EV charging companies to use their networks. For example, EVgo plans to deploy 3,250 fast charging stalls for GM by 2025. And VW has big plans to beat Tesla in the EV infrastructure arena and is investing heavily in this endeavor. It already has agreements in place with several companies, including BP (NYSE: BP), Iberdrola (BME: IBE), and Pod Point (LON: PODP).

There are currently three levels of EV chargers. Level 1 is the slowest and Level 3 the fastest. Level 2 is the most popular for now; until such time, the faster chargers become more affordable.

ChargePoint and Blink Charging are mainly Level 2 providers, while Tesla is currently leading the way with Level 3.

Nevertheless, EVgo is on a mission to roll out its fast-charging stations with the view that this is the convenience people really desire. And with this in mind, EVgo plans to more than triple its fast-charging network in the next five years.

Is EVgo stock a buy?

The EVgo share price is now falling, following a sharp rally, because it simply ran up too far, too fast. In Q3, EVgo delivered a surprise profit and upgraded its full-year outlook.

The excitement of the infrastructure bill, positive earnings, extended partnerships with Uber Technologies (NYSE: UBER) and General Motors led shareholders to rapidly buy up EVGO stock. But a reality check from analyst Maheep Mandloi of Credit Suisse gave the stock a target price of $17, which led it to fall back from its high above $19.

EVgo stock has risen over 90% in the past month. It is now sitting around $15, which suggests it may have further upside, but the entire industry is precariously bubble-like, so investors should exercise caution.

EVgo share price year-to-date

Is ChargePoint stock a buy?

EV infrastructure company ChargePoint is a leading player in the US. The company develops and markets Network Charging Systems for fleet owners, commercial customers, and retail consumers. It also offers them cloud-based services.

ChargePoint went public via SPAC IPO in March after combining with Switchback Energy Acquisition Corporation. And since then, the CHPT share price has endured a volatile ride.

ChargePoint stock price chart year-to-date

FactSet analysts give this stock a consensus Overweight rating, with a target price of $32. This suggests a potential 17% upside from the current share price. However, a couple of ratings have recently changed from Buy to Hold, and this is a very competitive space.

ChargePoint itself expects to achieve a 41% CAGR in EV sales through 2026.

Is Volta stock a buy?

Volta's EV charging stations come equipped with screens that display adverts from which it generates much of its revenues. This gives it a unique edge over competitors and helped boost its Q3 earnings.

Its recent results showed Q3 revenue up 77% year-over-year, reaching $8.5m. It also showed growth in installations, with a 50% year-over-year uptick. Unfortunately, Volta is expected to install fewer chargers by the year-end than previously forecast.

Volta has also added new media advertisers to the platform, including Visa, DHL and Discover, while existing customers Comcast, Dunkin', FedEx, and Hulu continue to use the service.

Scott Mercer, Founder and CEO of Volta, said:

"This year has been momentous for Volta as we continue our mission to build the fueling infrastructure of the future and support the multi-generational shift to electric mobility,"

Volta's analyst rating consensus is a Buy. This is based on the ratings of four Wall Streets analysts according to FactSet.

Is Blink Charging stock a buy?

Blink Charging stock is up 55% in a month. It has also benefited from the infrastructure bill, and investor enthusiasm after its Q3 sales beat analyst estimates. But this is another overvalued stock that is difficult to justify.

The company's Q3 earnings drew a loss of 36 cents per share, which was considerably worse than the analyst consensus of an expected loss of 29 cents per share.

Nevertheless, sales of $6.4 million beat FactSet estimates of $4.7 million, buoying enthusiasm.

Its current price-to-sales ratio is a whopping 88x, which will take a miracle to justify.

The transition to EVs is all very admirable, but are any of these companies really likely to succeed without profits?

Robust EV charging infrastructure is vital for the global transition from ICE to electric vehicles. So, the excitement surrounding breakthroughs in this area can be understood. But the rate that these EV stocks have achieved outlandish valuations is unprecedented. Therefore, how sustainable it is for them to maintain that level of investor faith is doubtful.

EV momentum rockets

Elsewhere, the EV industry is enjoying further exhilaration. Tesla is always in the news, thanks to the unpredictable antics of its CEO Elon Musk. And this past month has been no different as Musk begins to sell 10% of his Tesla stake to take care of taxes. But so far, that hasn't done much to put investors in Tesla off the stock.

Meanwhile, relative newcomer Rivian (NASDAQ: RIVN) has increased its market cap to $146bn. Making it the third largest car company in the world, despite having only made 156 vehicles to date. Amazon (NASDAQ: AMZN) has a 20% stake in Rivian, and Ford (NYSE: F) is another shareholder with a 12% stake. Rivian's success at IPO has led to a boost in the Ford share price too, which is up 27% in the past month.

Lucid Group  (NASDAQ: LCID) CEO Peter Rawlinson told Mad Money's Jim Cramer that he wants Lucid to be perceived as a tech firm and not simply a car maker. He believes this is justified as the company is responsible for the entire process, from designing to manufacturing its cars. Rawlinson also highlighted the large number of pre-orders the company has received for its first car, the Air. The Lucid share price has risen 119% in the past month.

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Topics:
Electric Vehicles
EV
Industries:
Consumer Discretionary
Information Technology
Companies:
Blink Charging
ChargePoint
Evgo

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.