Companies that make charging equipment for electric vehicles may have gotten shortchanged in President Joe Biden’s bipartisan infrastructure bill, but their future remains bright even without the extra help.
Biden had promised $174 billion to help build out EV infrastructure, including money for public charging stations, consumer rebates for American-made EVs and a pledge to electrify the government’s fleet. So naturally investors in EV charging stocks were disappointed by the $7.5 billion allocated for EVs in the bill, according to Cowen analyst Gabe Daoud.
The infrastructure plan appears to be heading for approval after the House of Representatives earlier this week adopted a massive budget resolution, overcoming concerns that a rift between Democratic Party factions would derail a carefully crafted agreement on funding. House Speaker Nancy Pelosi said she’s committed to passing the legislation by Sept. 27.
But to the EV industry, the bigger point is for all the hand-wringing none of this may matter in the end. The companies probably can thrive without the government’s help.
“The industry is moving to electrification regardless of legislation,” Morningstar analyst David Whiston said.
Until recently many experts assumed that Washington would have to help lead the way in building out the infrastructure for an EV world. Transforming all of those gas stations into electric charging facilities, which is necessary for people to use EVs for anything beyond local driving, seemed daunting. But progress is coming so quickly to the EV industry that analysts now believe the system will come together regardless of whether it gets any help.
“With or without policy, we think the sector is likely to see tremendous growth moving throughout the decades,” Daoud said.
It’s easy to understand the enthusiasm as the market takes over. EV sales are booming, with global penetration at 7% this year, from 4% in 2020, Daoud said.
“Everywhere, there’s growth everywhere,” said Craig Irwin, an analyst at Roth Capital Partners.
The question now for the industry is basically about chickens and eggs. Do charging stations have to come first before consumers buy EVs en masse? Or do EV purchases have to reach a certain threshold and then the charging ports will follow?
Analysts say the ideas are closely linked and that it may happen in tandem.
“This sector will grow and charging infrastructure will manifest so long as the vehicles show up,” said Daoud.
The majority of growth in the EV industry is expected to come from charging companies, since there will be the need for a lot of charging stations, and quickly, analysts said. That gives the early entrants the opportunity to stake a claim.
“Anyone who has scale today, is likely to have scale tomorrow and scale five to 10 years from now,” said Irwin, who tabbed ChargePoint Holdings Inc. and EVgo Inc. as stocks to watch.
To be sure, with so much uncertainty surrounding EVs, risks abound. ChargePoint and EVgo still haven’t reported any revenue, much less profits. And ChargePoint already has a market capitalization of $6.8 billion, while EVgo is worth $2.4 billion.
EV stocks are notorious for their high valuations. Tesla Inc., for example, is worth more than the entire U.S. automotive sector combined. Some EV companies have faced fraud allegations, while others are struggling to make money. Toyota Motor Corp. Chief Executive Akio Toyoda criticized the excessive hype and said many advocates are failing to consider the carbon emitted by generating electricity and the costs of transitioning away from traditional vehicles.
However, analysts who are bullish on the EV industry preach patience with it just starting to grow. As long as these companies can execute their business models, the profits should follow, Irwin said.
“If you start running the numbers on where we are going to be, you know 30% EV adoption, there’s a whole lot of blue sky,” he said. “How do you put a value on that?”
© 2021 Bloomberg L.P.