Switchback Energy Stock a Fascinating yet Overpriced EV Play

Special purpose acquisition companies (SPAC) have massively disrupted the IPO market this year. Particularly, for electric vehicle (EV) companies, it’s been the modish EV IPO route. EV charging company ChargePoint is another big name that is foregoing the traditional IPO route to merge with blank check company Switchback Energy (NYSE:SBE).

Source: Michael Vi / Shutterstock.com

Since the announcement of the merger back in September, Switchback Energy stock is up by over 200%. ChargePoint has one of the largest EV charging infrastructures, and the merger will crank up expansion plans like never before. Hence, Switchback Energy stock is another exciting play in the EV space, with massive potential for success down the road.

Switchback has raised over $20 billion from various investors since 1988. It is led by the hugely popular NGP Energy Capital Management Group. The company has taken 11 companies public from its vast portfolio in the past six years. Roughly one-year after Switchback’s IPO, the blank-check company announced its merger with ChargePoint. The euphoria surrounding the merger and EVs, in general, this year, has me concerned about the potential valuation of the combined entity.

Details of its IPO

ChargePoint is among the numerous EV makers this year who opted for a reverse merger with a SPAC in going public. However, the company’s situation is unique as it’s already an established company, looking to expand its existing revenues. In contrast, several EV companies taking the SPAC route this year have questionable paths to profitability, and some haven’t even made a dollar in revenue.

ChargePoint aims to maintain its dominance in its EV charging business and its networking business in the electric transportation market.  The company believes its 2019 revenues of $145 million will grow to $2 billion by 2026.

Switchback and ChargePoint’s board of directors have approved the business combination, which is valued at $2.4 billion. ChargePoint should have $683 million in cash funded by Switchback’s $317 million cash-in-trust and another $225 million PIPE of common stock. The deal is expected to close by the conclusion of the fourth quarter this year.  Moreover, ChargePoint’s current CEO and president, Pasqual Romano and his existing team will lead the new operations.  The proceeds from the combination and its access to the stock markets should provide ChargePoint with massive funds in expanding its revenues.

ChargePoint’s Potential

ChargePoint is currently the leader in EV charging stations, with an unmatched network across North America and Europe. It operates its stations in 16 European markets and holds a 73% market share in North America. Moreover, it operates more than 115,000 charging ports to take that number to 2.5 million by 2025.

The company recently stated that the EV infrastructure investment in the US and Europe would exceed $60 billion by 2030.  This is understandable considering how the EV market is expected to grow at a CAGR of 22.6% by 2027. The top tier leadership will look to steer its resources in cementing the company’s dominant position in the industry.

However, the combined entity’s valuation is a potential concern. We have seen how EV companies this year have skyrocketed after debuting on the stock exchange. I don’t expect the EV craze to wear off anytime soon, so such a situation is likely to come to fruition.

Final Word on Switchback Energy Stock

Switchback Energy is a blank-check company that is perhaps less risk than its counterparts. This is primarily because of its reverse-merger with a seasoned player in the EV realm in ChargePoint. ChargePoint has a lot of potential in establishing a monopolistic position in several markets across Europe and North America. However, I am concerned about the combined entity’s eventual stock price, which should turn heads as have other EV debutants this year. Hence, a wait-and-see approach is perhaps the best option for investors at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article