Is The EV Charger War Over?

"Editorial demands meant that this piece was written on Thursday, before the news of GMs move to the NACS broke. That story, however, doesn't really change things in terms of the analysis and recommendations in the article, it just makes them even more relevant and timely."

As many of you will know if you have read what I have written in the past, I am generally a fan of trading the market reaction to any news rather than the news itself. That is because as an individual retail trader you cannot possibly compete with institutional traders, let alone computerized trading systems, when it comes to the speed with which you see, digest, and react to news. What you can do, though, is look for an overreaction when all those trading desk guys react in the same way, or for instances when prior positioning causes them to overthink and react illogically.

There is an example of the latter of those two things going on right now in reaction to some big news that hit a couple of weeks ago.

Potentially the biggest news in energy over the last few weeks had nothing to do with oil, natural gas, or even coal. In fact, it wasn’t about energy sources at all, but about energy delivery methods. On May 25^th, Ford (F) announced a partnership of sorts with Tesla (TSLA) that will allow Ford EV owners to access and use Tesla’s charging network. Given that Ford is the number two maker of EVs behind Tesla that is big news in any context, but in terms of what was shaping up to be a battle between Tesla’s North American Charging Standard (NACS) and the rival Combined Charging System, it is huge.

Until now, NACS has been for the exclusive use of Tesla owners and, due to some savvy foresight and massive investment by Tesla, the size of the charging network and reliability of their standard have both been way above those of CCS. So, if NACS access is now available to non-Tesla users, you might think that the charging standard war is essentially over, with Tesla’s army of chargers the clear victors. But if that is the case, why do the charts for two rivals of Tesla in the EV charging business, EVGO (EVGO) and ChargePoint (CHPT) since the announcement look like this?

Both stocks have gained in the two weeks following news that makes them look like they are to EV charging what Betamax was to video cassettes: a perfectly good system outmaneuvered and out-marketed by a rival and as a result condemned to fade away to a mere footnote to the history of the industry. How can that happen?

Well, a lot of it has to do with what came before. When you look at the 1-year charts for both stocks it is pretty clear that the market overall was short of them, not long, and news of any kind often prompts some profit taking which in this case would be buying. Still, to do that you have to convince yourself that there could be a counterintuitive move based on the news and it looks like a lot of people have done that here. As far as I can make out, the logic goes something like this.

The US Government has already pushed CCS as the North American standard and invested money in that protocol, and positive news for NACS just means that more money will be thrown at the problem. Add in the left’s new-found hatred of Elon Musk, who has gone from eco-darling to raving right wing nut in their eyes since the whole Twitter thing and his open support for some Republicans, and a robust response from the Biden administration in terms of more money or maybe regulatory intervention with an anti-trust theme looked to some people like an inevitability.

There is, however, a problem with that analysis. When asked about the news, Transportation Secretary Pete Buttigieg said the government was "…not going to pick winners and losers in terms of what standard prevails." He added the view that added the industry will eventually converge on one system but that adapters would allow cross usage. Of course, that could change should pressure come from the left. I mean, it wouldn’t be the first time that a politician had done an about face on a reasonable policy view in the name of political expediency, but as of now, there is no indication that that is coming.

So, the news about Ford and Tesla has to be taken as what it is at face value…a potential disaster for companies like EVGO and CHPT. They are already struggling for cash and losing out to Tesla in terms of the infrastructure buildout and reliability, and this could be the final blow. After all, if Ford can partner with Tesla, why not VW, GM, or others who up until now have been in the CCS camp? Regulators have so far forced adherence to CCS in the EU, but the North American market is separate, and for US focused companies like EVGO and CHPT, news of a Ford/Tesla charging arrangement is devastating.

Usually, when a stock reacts to news in a way that looks illogical and continues with that reaction for days, it is you that has missed something, not everyone else. In this case, though, it looks to be the product of a market that is predisposed to buy based on prior positioning overthinking something, and that makes both RVGO and CHPT sells on this rally.