The long-term tailwinds for electric vehicles (EVs) are as strong as ever. But investor excitement for EV stocks, and EV charging stocks, has taken a dive as valuations have compressed and a challenging business climate has dampened the short-term trajectory of EV adoption.
But behind the scenes, companies are making bold bets on the future of EV adoption. A higher percentage of EV passenger cars, buses, and fleet vehicles on the road will change fueling infrastructure. The biggest mistake investors are making on EV charging stocks is thinking that the infrastructure, and the fueling process in general, has to resemble today's gas station -- when in reality, the fueling process of the future will look drastically different. Let's discuss the effects of this change and how to invest in it.
Image source: Getty Images.
A new paradigm
The beauty of EV charging versus gas and diesel fueling is that EV charging has a lower footprint and benefits from a modular approach. That means it's easy for a business, apartment complex, or office to install a couple of charging stations in a parking lot. Or a single-family home could have its own charging station, something that simply doesn't exist with gas fueling.
Gas fueling is concentrated at a single station, is super fast, and is an active process. The bulk of EV charging is distributed, slow, and passive. It's a completely different dynamic, which isn't a bad thing -- it just takes some getting used to, especially for folks who have never owned an EV or aren't familiar with EV charging habits.
The big difference between gas fueling and EV charging is that gas fueling is something that folks go out of their way to do and doesn't take a long time. EV charging is passive and occurs when you're not using your car, mainly at night, at work, or when going out and about for an extended period of time.
DC fast charging isn't as important as it seems
One of the reasons people gravitate toward DC fast charging is that it closely resembles the current gas fueling process. DC fast charging takes less time, sure. But it's not a practical solution for at home or at work. If overdone, DC fast charging has been shown to be harmful to battery longevity, whereas AC charging puts less stress on the battery.
A recent story that's gotten a lot of attention is that Tesla(NASDAQ: TSLA) is opening its DC Supercharger network to non-Tesla cars. The news sent a lot of pure-play EV charging stocks down due to fears that Tesla would wipe out their business models. But again, EV charging companies are mostly operating within the world of AC charging, although many have DC charging options as well. The Tesla Supercharger network is incredibly valuable and useful. But it's not a replacement for AC charging at work or at home.
Ways to invest in EV charging
There are myriad ways to invest in EV charging. The first is pure-play EV charging stocks like ChargePoint Holdings(NYSE: CHPT), EVgo(NASDAQ: EVGO), Blink Charging(NASDAQ: BLNK), and Wallbox(NYSE: WBX). Unlike a gas station, which makes money from selling fuel, a company like ChargePoint makes money by selling its hardware and then charging a recurring fee for operating that hardware through software and services.
A safer way to invest in EV charging is through an industrial conglomerate. ABB(OTC: ABBN.Y), Siemens(OTC: SIEGY), and Schneider Electric(OTC: SBGSY) are experts in electric applications. So adding EV charging to their product portfolios was a natural progression. ABB has developed an impressive suite of charging options across the marketplace, including single-family homes, multi-family homes, work, retail, commercial and industrial fleets, heavy-duty trucking, and even public transport.
The downside of investing in these companies is that they offer less of a direct benefit from the growth of EV charging. But it is far less risky since these are established businesses with a diverse set of revenue streams, leaving them less affected by the ebbs and flows of a single industry.
Finally, there's Tesla. By monetizing its DC Supercharger network, Tesla is positioned to benefit from growing EV adoption. DC charging is the most practical solution for long-distance driving and road trips. It's not an everyday occurrence, but it's still an important part of the industry, and Tesla has an undisputed pole position when it comes to DC charging. However, investors aren't buying Tesla solely for its charging station network. That business pales in comparison to its automotive sales and the other bets it's making in autonomous driving and robotics.
The right way to approach the industry
The International Energy Agency estimates that EVs will make up 60% of vehicles sold globally by 2030. In April, the Biden Administration made a goal to have 50% of all new vehicle sales be electric by 2030.
It's one thing to read these forecasts and think about the effect on the marketplace. But it's quite another to realize increased EV adoption's effect on society's week-to-week fueling habits. In the coming years, more and more people will have EV chargers at home. It's probably going to be far more common to charge at work and when going out on the weekends.
Put another way, society will adjust to the differences between EV charging and gas fueling, which will normalize the process. When society as a whole adapts to EVs, range anxiety will decrease, and people will feel more comfortable with the new normal of refueling and how an electric society differs from a gas-powered one.
As for investors, the mistake to avoid would be applying the same constructs of the way things work now to the way things will probably work in the future. It's important to think outside the box and not let preconceived notions overweight or underweight a potential investment opportunity.
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Daniel Foelber has the following options: long January 2024 $12 calls on ChargePoint, long September 2023 $146.67 calls on Tesla, short January 2024 $13 calls on ChargePoint, and short September 2023 $150 calls on Tesla. The Motley Fool has positions in and recommends Abb and Tesla. The Motley Fool has a disclosure policy.
