Ahead of EVBox Merger, TPG Pace Beneficial Might Be Cheap for a Reason

Stock Market

When I last discussed TPG Pace Beneficial (NYSE:TPGY), I voice some skepticism regarding the special purpose acquisition company. Scheduled to reverse merge with EVBox, an electric vehicle charging solutions provider, the outside fundamentals seemed supportive for TPGY stock.

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After all, everybody was going crazy for electric vehicles, which bode well for EV infrastructural plays like EVBox.

On the surface, I can appreciate the bullish thesis around TPGY stock. For one thing, rival ChargePoint (NYSE:CHPT) — which also went public via a SPAC merger — enjoyed an explosive rally relative to its pre-merger announcement price. Second, and more importantly, both companies feed the infrastructural requirements necessary to make EVs viable globally for most income levels, not just the well-heeled car owners.

However, the EV market is a tricky place to make a living. While the availability of additional charging stations will shift the needle favorably for this transportation alternative, the vehicles themselves must get cheaper. That’s not quite happening at this very moment — although economies of scale should make less-expensive EVs a reality — posing challenges for TPGY stock.

Earlier TPGY Stock Skepticism Was Warranted

Sure enough, my skepticism on EVBox was warranted, with shares dropping 38% from mid February when my last TPGY article was published. Not helping matters was similar volatility affecting ChargePoint shares, which are down 28.5% in the same time period. Still, both companies are tied to relevant sectors. That hasn’t changed, just the price.

Therefore, it appears that TPGY stock could be a discount to exploit. That’s one of the arguments that InvestorPlace contributor Mark Hake put forward recently. Comparing the valuation of EVBox to ChargePoint, Hake suggests that the former is grossly undervalued. As he put it, both are charging stations so both should have similar valuations.

It’s difficult to question this logic and he could very well be right. Yet I’m still hesitant fundamentally as the EV charging station business model has lingering questions that a plummeting stock price doesn’t quite answer.

If EVBox Builds It, Will Sentiment Come?

One of the reasons why EVBox appeals is that it follows the Field of Dreams logic: build it and they will come. In this case, EV demand is already arriving in droves. Therefore, the charging station operator just needs to exist. You couldn’t have an easier bullish argument for TPGY stock.

But the main challenge is that EV demand is mostly concentrated in high-earning households. For instance, the cheapest “normal” EV — by that, I mean something with four wheels — by a major manufacturer is the Mini Cooper SE, which is priced just under $30,000. With the federal tax subsidy, the Mini is a reasonably priced vehicle. Without it, a $30,000 car that’s slightly bigger than a Hot Wheels is quite pricey.

Of course, these EV subsidies are not indefinite. And if you don’t have a tax liability to offset your federal tax credit with, then you must undergo financial gymnastics to reap the benefit. Who usually has tax liabilities? Savvy, affluent people who run their own businesses or have complex tax structures, which does not describe the general populace.

In my opinion, people who are in the average household income bracket need a much-less-complicated incentive and something more direct. I don’t think you can get anything blunter than a cheaper price tag. When you can get EVs that are functionally uncompromised starting around the $20,000 level, we may be onto something. Until then, TPGY stock will likely always carry a question mark regarding its underlying business viability.

Moreover, a science issue plagues the EV charging landscape. As you know, even the fastest charger will take around 15 minutes to fill up an EV — and one shouldn’t supercharge their vehicles too frequently. However, time is money, especially for the lower income bracket. According to the Economic Policy Institute, we’re working harder and longer but for not much more pay.

That’s going to be a drag for full EV adoption, hurting sales and down the line, TPGY stock.

Avoid If You Can’t Handle the Heat

Now it’s possible that TPGY stock could bounce higher since many folks are likely not thinking through the minutia of the EV infrastructure rollout. With the crazy environment in the market, anything can happen. Definitely, I would not short TPGY.

But is it reasonable to take a speculative bet? There are worse ways to spend your “dumb” money so if you want to make a wager, by all means don’t let me stop you. But with the squirrely nature of the EV market, TPGY is not for the faint of heart.

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

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.